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Keeping an eye on the grain market: February 8 update

What to watch:Weather in Argentina has been keeping the trade ‘on its toes’ ahead of key reports


Alex   Black

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Alex   Black
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Keeping an eye on the grain market: February 8 update

The likelihood of the UK carrying out an excess of 2mt was becoming more of a reality, with market dynamics still pointing to an oversupply

 

Russia’s exports have increased but the EU was struggling to keep pace with the potential for a burdensome year end stock build weighing heavily on values


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Keeping an eye on the grain market: February 22 update Keeping an eye on the grain market: February 22 update

May 18 LIFFE wheat futures closed on Wednesday February 7 at £139.90/t, a rise of £0.30/t on the week


UK Grain

UK Grain

Market dynamics still point to over-supply


The LIFFE market traded earlier this week at a yearly low, as the pound soared to its highest level against the US dollar since the UK voted to leave the EU.


Despite signs of a fund-led rally in the US, the futures market has been governed more by currency movements and the impact from Brexit talks, as well as the seemingly less secure position of the prime minister.


Although LIFFE seems to be set in a narrow trading range, UK physical prices in most areas of the North and West have hardly moved, as sellers remain reluctant to sell the market lower into constant demand from end-users and merchant shorts.


The lack of competitiveness, and exports, has meant prices in the South and East have eased back over the past month, leaving the market logistics open to increased haulage costs, as grain is being transported further North and West.


Market dynamics still point to an over-supply, and with uncertainty surrounding when, or if at all, one of the country’s bio-ethanol plants will re-commence operations, the likelihood of the UK carrying out in excess of 2mt is becoming more of a reality.


At present, and based on previous seasons, this scale of inventories is well within the scope of farmers’ storage capacity.

 

However, while they remain reluctant sellers, their action may well erode what little carry is already in the market, as the consumption trade seem less aggressive buying forward with a market carry.


David Woodland, Gleadell


European Grain

European Grain

Russian exports increase as EU market struggles to keep pace


EU wheat markets have not been able to keep pace with the recent rally seen in the US. Despite some new crop weather issues supporting wheat at a global level, the reality for European markets is that the potential for a burdensome year end stock build is weighing heavily on values.

 

By January 30, the EU had shipped just 12.2mt of soft wheat, compared to 15mt at the same point last year. If the same pace continues, the EU will ship fewer than 21mt, significantly below the USDA target of 27mt.

 

In the meantime, a kind winter has allowed Russia to forge ahead with its aggressive export campaign. Russia’s agricultural agency, Sovecon, now sees wheat exports this season reaching 36.8mt, ahead of its previous estimate of 35.5mt.

 

Zoe Andrew, Frontier


Global Grain

Global Grain

Argentine weather keeps the trade on its toes ahead of key reports


The good start to the year for grains prices continues in February with La Niña negatively impacting crops in Argentina. Speculators have been bearish on grains for quite some time due to the ever growing global stocks, but building up a record short positioning for this time of the season has proved to be somewhat dangerous.

 

Drought continues to spread across the US Plains as well as in key producing regions of Argentina although some rain in the latter region will slow down the deterioration of the conditions rather than improve the situation.


Since last November, less than 20mm of rain fell in Kansas and as such Kansas wheat futures prices have rallied more 9 per cent since the beginning of 2018 whilst Chicago soymeal gained 5 per cent. The Argentine soybean crop has been hit hard by long lasting dry conditions due to La Niña and as such, many operators have started cutting their production estimate.

 

The USDA is likely to do the same in tonight’s WASDE report. Argentina accounts for just 5 per cent of the soybeans exported in the world but nearly 50 per cent when it comes to soymeal. Further North in Brazil though, a record soybean crop could make up for some of the losses in Argentina.


For wheat, the focus remains on the Russian pace of exports whilst the outlook for the 2018 harvest is positive in the Black Sea.

 

Finally, the world barley market is getting tighter and tighter with ongoing strong demand, particularly from China after the Asian ogre launched on Sunday an anti-dumping probe on US sorghum which means that they could import more corn and/or barley.


Benjamin Bodart, CRM AgriCommodities


Oilseeds Market

Oilseeds Market

Adverse weather provides support for oilseeds


It was not only outside markets (stocks/bonds) that had a tantrum this last week, world oilseed prices have also been awakened from their slumber, led by Chicago soybean futures. While sharp swings in bean prices can partly be explained as 'spill-over' from volatility elsewhere, fundamental reasons for uncertainty in the oilseeds market are becoming increasingly apparent.

 

Of these, the ongoing extreme dry weather in Argentina and soaking rains in Brazil are at the forefront of trader's minds. With little precipitation forecast for Argentina, the world's largest exporter of soybean meal, production estimates are being revised lower.

 

In addition, farmers are withholding stocks from the export market while their currency plunges and truck drivers are on strike.

 

Further north heavy and persistent rains in Brazil are preventing freshly harvested inland soybean supplies from getting to the ports. So, with restricted supplies from the key South American market, the prospects of additional soybean exports from the US are currently being factored-in, helping prices gravitate higher.


In Europe, rapeseed values have also started to climb, partly as a result of the soybean 'story' gaining traction, but also on a weaker euro/dollar and the fact that the EU needs to import rapeseed in volume. However, recent heavy price declines have made the EU an unattractive outlet for Canadian or Australian canola. More upside in prices is thus anticipated.

 

Rupert Somerscales, ODA

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