What to watch: Conditions in South America for soybeans ahead of harvest in the spring as this could be the catalyst if oilseed prices were to rally.
Wintery conditions have frustrated lorry ‘hours’ and helped increase domestic demand for grain, making the UK markets unpredictable.
But there has been no Christmas cheer for the European markets as continental wheat prices remained under pressure.
And EU rapeseed prices continued to drop following pressure from increasing stocks of Malaysian palm oil.
May 18 LIFFE wheat futures closed on Thursday December 14 at £141.60/t, a fall of £1/t on the week
The UK domestic market is almost purely about spot deliveries with consumers and traders making sure holiday season requirements will be met. The country seems to be short of bulk lorry ‘hours’ which has been further frustrated by the recent cold and snowy weather.
The word hours is important because it is the distance and time that lorries are travelling which has eaten through driver hours and was limiting tonnes being moved.
A smaller UK wheat crop and location of demand versus supply of crop needs to be part of any traders strategy. Recent trade data shows a healthy arrival of maize in October from across the Atlantic, which isn’t usually seen as traders usually have to wait for Ukrainian supplies, but either way for every tonne of maize arriving it could release demand from the wheat balance sheet.
‘Could’ because the continued rise in milk prices and ever increasing chicken numbers are all adding to the domestic demand numbers, which also hasn’t been helped by the arrival of wintery conditions.
Uncertainties will certainly keep the market on its toes and makes any price move far from obvious.
Continental wheat prices remained under pressure last week as the market remains focused on the dominance of Russian supplies on the world market and as the USDA’s latest report gave little positive spin.
To the east, Russian and Romanian wheat continue to dominate Egyptian demand, with another slug of wheat sold this week from both countries. Wheat prices here remain stable on a FOB basis, but are struggling inland where rising freight costs to port have pushed interior ex-farm values sharply lower.
Elsewhere, other exporters are fighting hard for North African demand, with French, US and Argentinian wheat prices all trading within a $4/t range CIF Morocco.
Temperatures across much of Russia’s wheat growing areas remain well above normal levels, which is helping them achieve and maintain their strong pace of exports.
However, these conditions are delaying the winter snows, which are critical to plant survival if and when temperatures finally go well below sub-zero and threaten to provide inadequate soil moisture levels further on in the growing season.
The release yesterday by USDA did little to break the bearish supply stranglehold over the market.
Global wheat and corn stocks were revised marginally higher, despite further increases in global usage. Although many questions were answered, many still remain unresolved.
Why did USDA forecast lower US wheat exports and not US corn exports, which are running 42 per cent behind last year? Why did it not reduce Australian wheat production, when it cut output in Canada and Brazil? And why is USDA refusing to adjust its EU export projection which remains well overstated?
Hopefully in the coming months these points will be addressed, although overall they will have little impact on the balance sheets.
US wheat and corn markets traded down to new contract lows after the release yesterday, as the reports were deemed bearish. Russian wheat will put a lid on the market, while the weather remains favourable for transportation and shipment of grain, leaving sizeable short positions held by the fund managers as the only technical support.
South American weather will continued to be closely monitored, but this is mainly factored towards soy and corn, although any major rally may spill over into the wheat pits.
Overall, the bearish picture remains and, even though we have seen a consecutive run of contracts lows in Chicago this week, the market still doesn’t give the impression that we are at the bottom yet.
As the market moves towards the festive break, expect markets to continue the grind lower, as exporters try and find additional demand, either domestically or internationally.
EU rapeseed price have continued to fall since they peaked in early November, trading to their lowest in 6 months on the Feb-18 Euronext OSR contract. The drop has come following pressure throughout the entire oilseeds sector, particularly veg oils as supplies increase for Malaysian palm oil where stocks reached the highest level in 2 years in November.
La Niña remains a key driver as the market continues to attempt to forecast the implications of dry weather in South America and the ongoing deluge in Australia, which has been making the headlines of Ag commodity commentators, although for now yields and oil content in Australia both appear to be better than expected following a dry growing season with total production seen around 3mt.
Furthermore in Canada, StatsCan announced last week a record canola crop at 21.3mt which was 8.7 per cent higher than last year and above market estimates.
The USDA December report put global soybean ending stocks at 98.32mt which was slightly above average analysts estimates. This pressured prices as well as rains in Argentina forecast over the coming weekend expected to be beneficial for soybeans.
Into 2018, farmers should pay attention to conditions in South America for soybeans ahead of their harvest in March/April. If prices are going to rally from current levels, this will likely be the catalyst.
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