What to watch: Ongoing political chaos was leaving the currency volatile and future access to EU markets uncertain
In the UK, exporters were racing to beat the Brexit deadline with ports in the South of England very busy.
Global markets are on a ‘roller-coaster’ ride.
And oilseeds are showing resilience despite weak grain prices.
Nov-19 LIFFE wheat futures closed on Thursday, September 5 at £134.25/tonne, a rise of £2.25/t on the week.
Harvest pressure continued to weigh on the UK wheat market and pushed London futures to new contract lows earlier this week. Farmers were still reporting high yields as most based in the southern half of the country finished their combining, signalling a healthy exportable surplus.
Wheat production estimates vary widely, between 16 and 17 million tonnes, but it would seem likely we will need to ship up to 2mt. It is this situation that has pushed UK wheat prices down but, helped by weak sterling, this has enabled the trade to compete and secure essential export sales.
Ports around the south of England are very busy loading ships and proving a major test for the country’s logistics capability. Most vessels are headed for Spain (our traditional major export market) in a race to beat the Brexit deadline at the end of October.
Technically oversold and perhaps having fallen too far relative to other origins, UK futures staged a small rally midweek. The flow of wheat to ports will need to continue at a brisk pace to prevent the build of burdensome stocks.
Ongoing unprecedented political events are leaving our currency volatile and our future access to EU markets uncertain. With French wheat futures also trading to contract lows this week, the small lift in UK prices should not be ignored.
EU wheat is set to post a sixth consecutive week of losses amid a sharp recovery in this year’s soft wheat production, particularly in France, the largest producer/exporter of the bloc.
As such, spot Euronext milling wheat has dropped below the €160/t mark (£143.50/t) for the first time since mid-March 2018, forcing farmers to ‘shut the shed’ in expectation of better prices and a seasonal bottom potentially being formed.
The recent sell-off coupled with the weak euro has greatly improved the competitiveness of the EU origin against the Black Sea, at least on paper.
The French port line-up remains robust with the ‘traditional’ wheat exports being observed toward North Africa but some exotic destinations, such as China are getting attention from the trade, with the Asian ogre buying both wheat and barley.
As a result, EU wheat exports are picking up, standing at 3.6mt, up 20 per cent on last year, but more will be needed to avoid a significant build up in stocks at the end of the season. At the same time, the euro has started to recover against the US dollar, which makes the EU origin priced in USD less attractive on the export market.
For maize, little fresh news this week. EU imports are still a record at 3.6mt (up 1.5mt on last year) in anticipation of a reduced crop in western Europe after this summer’s heatwaves somewhat compensated by a good outlook in eastern Europe and excellent condition in Ukraine.
Global Markets have continued on the price rollercoaster. With the Baltic Dry Index firming, currently now at a six-year-high and heading to a nine-year high, many are wondering what the ultimate impact could be on trade flows.
With very weak global currencies and yet another trade meeting (the 13th) being announced between the US and China for early October, markets remain in relatively unchartered territory. Next week's USDA report and the uncertainty as to how late-planted US corn will be affected (if not all) by frost events in the coming weeks also leaves traders with much to consider.
Confidence in data is also being tested, with many doubting how much grain many origins have shipped since the start of the season. Ports in many countries have been very busy but certainly in the EU this may be a function of more intra-EU than third-country business. Only official data will confirm this but the delay in publication causes its own frustrations.
At this early stage of the season there remains many variables that can and probably will change, which may make the 2019/20 season one of the most interesting for a number of years.
US soyabeans have avoided the weakness of the grain complex as solid export numbers (780,000t shipped to China last week) have kept values underpinned.
Trade is waiting for next week’s USDA report to see if any adjustments are made to planted area and yield projections.
Meanwhile, ex-farm sales of soyabeans in Argentina remain limited, due to the recent devaluation of the currency, which is increasing the expectation of higher export taxes.
Canada’s canola harvest is delayed by rain, although there is little weather risk, with no frost in the forecast.
In the EU, biodiesel margins remain strong and the extremely tight balance sheet continues to be the main focus.
Increased imports to the UK are predicted this year, as crushers buy Ukrainian seed to offset the reduced domestic crop.
However, upward movements in sterling, linked to the recent political developments over Brexit, have taken the edge off domestic prices, which had firmed recently.
In summary, next week’s USDA report will give the lead on US beans, although strong exports, despite the lack of a US/China agreement, should limit any potential downward pressure.