What to watch: The oilseed markets are focused on China following its recent purchase of US soybeans
In the UK, LIFFE wheat prices showed gains this week on the back of global trends.
EU grain prices have firmed from the contract lows seen in early September.
And there has been a muted reaction to the latest USDA report on world markets.
Nov-19 LIFFE wheat futures closed on Wednesday, September 18, at £135.35/tonne, a rise of £0.60/t on the week.
On Wednesday, LIFFE wheat futures rose to its highest level since August 22.
Gains were not specifically UK-orientated, rather underpinned by strength from offshore grain markets and despite a stronger sterling.
The weekend attacks on Saudi’s oil processing facility caused a vicious rally across global energy markets and, with a substantial proportion of the world’s grain and oilseeds supplies heading to the industrial, ‘green energy’ sector, grain and oilseed prices across the globe rallied in sympathy.
We were not immune.
European grain brokers report that they have already bought over one million tonnes (mt) wheat from the UK in the pre-Nov period. While substantial, this should not be such a surprise, since our wheat has been trading at a massive discount to Continental prices for much of the post-harvest period.
Today the spread between UK and Continental wheat futures is around £17/t, from over £22/t for parts of August and early September.
On paper, the UK wheat balance sheet suggests around 2mt wheat exports will be needed and with the exports already reported, around half the UK’s exportable surplus has already been booked, leaving a far less daunting export program in place for the remaining months of the season. As such, and referring to historical data, one would expect this UK/EU spread to narrow in the coming weeks and months as domestic supplies tighten.
However, while history can give indications about where our domestic wheat prices ‘should’ sit, Brexit’s tariff uncertainty with the EU after October has to be factored-in.
Markets have firmed from the contract lows witnessed in early September, supported by a rise in global prices and short covering.
The continued pace of exports from the EU is also underpinning the market. These were reported last Sunday at 5.1mt, up 34 per cent on the year.
Romania leads the pack, at 1.72mt, followed by France at 1.26mt. Germany, Poland, Bulgaria and the Baltic states make up the majority of the balance.
Algeria remains the main destination, with just over 900,000t shipped, followed by Saudi Arabia at just under 800,000t and Egypt at 472,000t. Korea and Sudan complete the top five destinations.
Black Sea exports are a mixed bag. Russian exports, have been involved in recent Egyptian tenders but are behind the same point last season. Ukrainian exports are seen running ahead, supported by a proposal from Ukraine’s agriculture ministry to increase 2019/20 exports.
Egypt has issued another tender. Based on current values and freight, this is again likely to be dominated by Russia and Ukraine, unless France decides to discount offers heavily to keep exports ticking over.
With EU crop yields apparently increasing, the pace of exports will be pivotal on the future direction of grain prices, particularly as EU domestic usage is projected to rise year on year and remains under threat from cheap imported maize, with 4.5mt imported so far this season.
The world’s wheat markets have been treading water this week with muted reaction to last week’s benign USDA World Supply and Demand report and a lack of fresh news to give direction.
European and UK markets are finding support from a brisk export pace. EU wheat exports from July 1 to September 15 topped 5.1mt, which is 1mt ahead of last year at the same time. Some observers suggest this number is understated and the pace will need to step up if the EU is to hit 24.9mt which is the estimate highlighted by the analyst Strategie Grains.
Algeria bought 600,000 tonnes of milling wheat on Wednesday this week for delivery in November which, although not mandated, is traditionally sourced from the French.
UK ports are busy loading vessels of various wheat grades but fresh business is slow. Firmer sterling and higher domestic prices have blunted the UK’s competitive edge. The disruption to Saudi oil supplies and potentially higher freight rates is not helpful.
With the Northern Hemisphere wheat harvest in the home straight, the corn harvest is now underway. Ukraine is seen by the USDA topping last year’s record corn crop reaching 36mt. This has pushed Ukraine corn export prices to a 10 year low.
Steady US crop ratings and an absence of any damaging frosts in the short and medium range weather forecast has kept CBOT corn futures close to recent contract lows.
News this week has been largely focused on China and its recent purchase of US soybeans. It has been at least three months since such purchases have happened, with China living off imported Brazilian beans.
Brazil has been a key exporter in the last few months, being price competitive and China’s only real choice while it refrained from trading with the US. Last week's reported sales have been followed by more reports and this week’s US export sales will be watched closely.
The debate over US crop size and the impact of African swine fever on Chinese demand will remain a focus, but as much as many are looking at pigs, maybe the focus should be on chicken demand for soya.
The global supply of soya is now expected to be close to 20.6mt less than last year, leaving stocks 13mt less.
The EU continues to import OSR at a great rate, trying to fill the demand left by a short EU crop and many will be keeping a close eye on Australian crop conditions as well, but while the ships arrive domestic markets will find it difficult to rally higher.
The price spread between soya and OSR has come off its highs from last week but markets remain nervous while waiting for the US harvest to prove or disprove the anticipated crop size.