What to watch: US temperatures were expected to drop significantly next week, and very little snow cover could increase the risks of winter kill.
In the UK, DEFRA has confirmed supply and demand is very ‘tight’ with compound feed production increased across all animal sectors year on year.
The EU is facing an aggressive Black Sea export campaign, undercutting prices and securing traditional EU export business.
And the US was watching the weather forecast with dry weather across key winter wheat growing states.
May 18 LIFFE wheat futures closed on Thursday December 21 at £142.30/t, a rise of £0.70/t on the week
Hard data speaks volumes
Confirmation that this season’s UK wheat balance sheet is very ‘tight’ was provided by DEFRA’s latest survey results of wheat demand by GB retail compound feed producers.
It showed that in October 2017 this huge demand source used 1.4 per cent more wheat in their rations during October 2017 than in Oct 2016. And last year was a record. For each animal sector, compound feed production increased over last year; pig feed production - up 6 per cent, cattle feed up 9 per cent and poultry up by 2 per cent.
This goes somewhere to explain why the temporary closure of Vivergo’s ethanol plant is having a negligible effect on physical ex-farm basis levels - likely to the annoyance of Vivergo. With a wheat crop of around 14.7mt and a domestic demand in excess of 15.5mt, combined with a negligible opening buffer stock, it remains a peculiarity many in the trade remain focused on UK wheat prices needing to be competitive for exports.
The fact is that we will likely import 2.5 times the quantity of exports this season. As such, the UK wheat balance sheet simply cannot afford to be competitive for exports. Import parity is therefore the key metric.
Rupert Somerscales, ODA
EU exports slow
On the back of global weakness, markets posted contracts lows at the end of November.
However, the EU is still facing an aggressive Black Sea export campaign, which is seen undercutting EU prices and securing traditional EU export business, leaving the likelihood that the USDA is not only underestimating Russian exports, but are also overstating EU exports.
Egypt, once a major French destination, continues to pick-off what seem competitive offers at their international tenders, although in the most recent tender, they purchased the first non-Russian cargo since late August.
Due to the slow pace of exports, the French farm ministry has recently reduced its non-EU soft wheat export projection to 9.5 million tonnes. However, this still seems very optimistic given that Argentinian vessels were reportedly heading to Algeria and French values were $20/t too expensive at the latest Egyptian tender.
Over the second half of the 2017-18 marketing campaign, it is likely that the USDA will start to address the export matrix between the EU and Russia, leaving the prospects of higher EU inventories. In addition, analysts are already projecting a 2018 EU wheat harvest on a similar scale to this season.
In summary, the slow export pace, the likelihood of increased inventories and favourable weather leaves the bearish trend intact. With no signs of a global recovery in prices, EU contract lows may be re-tested over the coming weeks, and unless there is a significant slow-up in Russian exports, EU prices will remain on the defensive.
David Woodland, Gleadell
US looks to the weather forecast
Wheat markets in the US have been under pressure, trading at contract lows. Funds have been heavy sellers of wheat, extending to record short positions. This dynamic could add volatility to the markets if weather issues build to a point that makes the funds nervous of holding large shorts in wheat.
Weather in the US has been dry going into the winter and as a result soil moistures have been in decline. Currently 24 per cent of the country is in moderate drought, but this is mainly in the plains where winter wheat is grown. Kansas is the biggest winter wheat producing state and is 99 per cent dry. This has built from 18 per cent in mid-November and follows above-normal temperatures and very little rain.
Some weather forecasters see the La Nina weather pattern persisting through the Northern hemisphere’s winter and it could keep the southern half of the US dry. Temperatures for next week were forecast to drop sharply for the US and with very little snow cover the risk of winter kill could be a concern.
In Argentina soil moistures have improved which is positive for new season plantings but it does mean that the remainder of the harvest is contending with some rain this week. They still have around 40 per cent of their wheat harvest to bring in which should equate to around 7mt now that average yields have increased to 2.79t/ha.
Zoe Andrew, Frontier
Rapeseed lower on reduced soybean risks
Rapeseed continued lower amid beneficial rains in Argentina weighing on soybean prices and a further correction in palm oil prices. The Feb-18 Matif rapeseed contract dropped to its lowest since early August 2016 and is set to finish lower for a second consecutive month.
Palm oil drifted lower after a recovery earlier in the week due to large stocks in Malaysia and ahead of this week's export data.
In Chicago, CBOT Soymeal prices slumped a further 8 per cent in the last 10 sessions on improving conditions in Argentina and decent soybean potential in Brazil although the next 10 days will be mostly dry for central Brazil. Private US exporters reported flash export sales of 145,000t of soybeans for delivery to unknown destinations during the 2018/2019 marketing year.
Overall, Rapeseed prices remain under pressure although there is continued development of bullish stories particularly in the Southern Hemisphere. The question will be whether they will be enough to cause a rally over the festive period.
James Bolesworth, CRM AgriCommodities