What to watch: Sterling set to remain a major catalyst for UK wheat prices in 2018.
The Vivergo Fuels plant closure continues to put pressure on the UK market.
Rainfall in Brazil has boosted soybean production, helping to level out a fall in US exports.
And surface water temperatures hit their lowest since 2012 thanks to the La Nina weather pattern.
LIFFE feed wheat posted a second consecutive month of losses in November in the wake of ample global stocks and the unexpected ‘Vivergo’ news which will lead to lower domestic consumption from the ethanol industry in 2018.
Vivergo Fuels has reiterated through a press release published on December 4 that due to ‘Government inaction’ to support the UK biofuel programmes, profit margins have remained under continuous pressure. As such, the 420 million litre ethanol plant, made from 1.1 million tonnes of mostly East Yorkshire wheat, run by ABF and Dupont had no choice but to shut down.
Consequently, the UK wheat S&D could be less tight than previously expected, particularly at a time when the UK remains a net importer of wheat. However, regarding the quality of the crop, the final results from the AHDB Cereal Quality Survey showed that just 24 per cent of the nabim wheat Group 1 met the quality spec due to the reduced Hagberg following a wet August.
Looking ahead in 2018, the UK wheat planted area could shrink for a fourth consecutive campaign to 1.752m hectares, according to the Early Bird Survey while the spring barley area could continue to expand and the OSR could snap a five-year decline by jumping 9 per cent or more than 600,000ha. Undoubtedly, sterling will remain a major catalyst for UK prices in 2018.
European markets are still struggling to identify the next move. The concern over exports, or ‘lack of them’, cannot be overlooked but reality is that export logistic capacity is available if buyers want what the EU has, but it comes at a price.
The domestic market values throughout many member states are not encouraging traders to discount currently hard to buy physical stocks, to ports and ships. This may change later in the New Year but it relies on farmers selling and a better confidence over the state of winter plantings, which do not currently look good in some countries.
If you couple this with ongoing dry conditions in the Iberian Peninsula it highlights the trades caution as we enter the holiday period. Of interest will also be the latest maize import levy calculation, with the move to the March CBOT contract, which may also re-focus consumers' attention, along with the commission's increased EU maize crop and January’s opening of the new TRQ season.
Some production concerns are emerging in Australia, where wheat yields are good in the west, but very poor in the east. Some deterioration in quality is possible in the south east. Rainfall has brought the harvests to a halt in Victoria and New South Wales, states where a significant area of wheat is still to be harvested.
For Russia - winter is settling in but temperatures are still higher than normal for the season, thus far limiting the impact upon logistics. Regarding Argentina’s maize-producing region - market operators are concerned about the weather, with dry conditions prevailing and drilling yet to be completed.
Soya bean prices have been on an upward trend on the Chicago market this week, breaching the $10/bu technical resistance level on nearby expiries.
Weather conditions remain favourable in Brazil, with sufficient levels of rainfall; the situation is less encouraging in Argentina with an increasingly severe water deficit. Falls in US exports are offset by Brazilian exports – showing an increase of 25 per cent to 61mt for March-November 2017.
The La Nina weather pattern has been making headlines over the past few weeks after surface water temperatures were recorded at the lowest levels since 2012, indicating the likelihood of a stronger La Nina weather pattern.
This week climate monitors have confirmed that temperatures in the Pacific Ocean have reached La Nina levels and this will need to be closely monitored, particularly with regard to the impact it could have on soybean and canola crops in South America and Australia.
Currently, the Australian canola crop is likely to see crop estimates increased due to the trade underestimating the potential of the crop earlier in the season. A final number in excess of 3.3mt looks increasingly possible. However, there is heavy rain falling in south eastern Australia which is hampering harvest and raising some concern about the quality of this year’s crop.
At this stage crop concerns are still speculation rather than certainty.
Brazil has had some good rain recently which has helped confidence in a higher soybean production estimate, now close to 110mt.
However, the forecast for Argentina and southern Brazil has turned dry again, a typical effect of La Nina. Decent rain is needed soon to avoid stress to recently sown soybean crops and to allow further planting into suitable soil conditions.