What to watch: The fluctuation of the pound will either create or destroy trade opportunities for the UK.
UK wheat and maize imports up.
USDA report produces a few surprises.
Oilseeds remain heavily influenced by political tensions between the US and China
May 19 LIFFE wheat futures closed on Wednesday, November 14, at £171.50/tonne, a fall of £1.50/t on the week.
The UK market will struggle in the coming weeks with the latest Brexit uncertainty. The fluctuation of the pound will either create or destroy trade opportunities.
The wheat balance sheet is so full of unknowns that domestic traders will be focused on execution of existing contracts while trying to work out at what point prices slip out of line and either create more imports or exports.
The import data for the first three months of the year show wheat imports close to 800,000 tonnes with maize closer to 550,000t. The last time the UK imported so much wheat in the first 3 months was 2013/14, when it topped 829,000 over the same time period.
Maize imports are at their highest and only go to show the continued ability of consumers to change their historical buying patterns and emphasise the relative cheapness of maize.
While confusion reigns around Brexit, there is also much debate over plantings for next season. The consensus seems to be more wheat area, however we all know area is one thing but yield is ultimately king.
Bearing in mind the violent down-move in global crude oil prices, which are currently caught up in a record-breaking losing streak and pressuring virtually all global commodity sector prices lower, continental European wheat prices held relatively well over the last week.
The exception is in the UK, where updated trade data showed wheat imports for September at 239,000t, lower than August’s imports, but still a very large number. Maize imports were put at 257,000t, one of the largest monthly import numbers in recent years.
The over-supply of the domestic market is ongoing and continues to pressure local grain prices in the short-medium term.
Plantings on the continent are still underway, having been delayed by the recent dry conditions. Eastern Europe and the Baltics are still awaiting much needed rains to get the winter crops emerged and off to a start.
In France, 85 per cent of the winter wheat area has been sown, but only 48 per cent has emerged (normally 60-70 per cent).
In Russia, wheat prices slipped-back for the second consecutive week. Exports so far this season stand at 18.2 million tonnes, compared to 13.5mt at the same point last year.
If this weekly export pace continues, Russia will have exported 25mt by end-December and thus pressure to curb exports even sooner may be needed. Food price inflation is up sharply and the domestic feed and milling industries are lobbying hard for a slowdown in wheat exports.
USDA produced a few surprises in its reports last week, mainly linked to multi-year domestic revisions in China, resulting in a 150mt increase in combined corn/wheat stocks.
However, the likelihood of these additional stocks entering the global markets remains remote. Excluding China, the figures showed little change on the month and have made little impact upon the markets.
For wheat, the only relevant change was a reduced Australian crop and concerns remain valid on the eventual out-turn, with crop downgrades now seen in NSW and Victoria.
Current adverse weather conditions could also have an impact on wheat production in Argentina and Brazil, all deemed positive factors for increased US demand.
However, the fact that the US still awaits non-traditional demand coming into its export book continues to weigh on prices, with current shipments still running more than 20 per cent behind last year.
The slow pace of the soybean harvest is delaying the last 10-15 per cent of winter wheat plantings in the Southern Plains, giving the Chicago/Kansas market spread some support.
Russia is still exporting at a record pace, despite various reports coming out of its agriculture ministry. However, at some point exports will ease, or stop completely if the ministry thinks enough is enough.
It remains the cheapest origin until new crop Argentine wheat hits the market in the early new year.
The timing of any Russian export curbs and/or any demand shift into the US book will be the next major driver in the wheat market.
Until either event happens we can expect the market to continue its current sideward/lower trend.
Oilseeds remain heavily influenced by political tensions between the US and China, If an agreement is reached between the two soybean superpowers then it will lead to a sharp recovery in soybeans values and wider oilseeds prices which remain under pressure from soybean markets.
For now, the chances of a resolution remain slim and the best the markets are able to expect is a tweet from Trump, or a telephone call from one of his negotiators.
The latest USDA report yielded higher global soybean ending stocks than the market was expecting and as it stands an estimated 12.5 per cent above last year, owing to swelling US stocks due to the trade war.
How sustainable this will be when the Chinese soybean giant needs feeding later in the season remains to be seen.
OSR prices are struggling to gain traction as crude oil values have tumbled nearly 30 per cent since early October and soybean prices remain under pressure. Despite this OSR balances look set to tighten further next year as the planted area across Europe tumbles and dry soils remain unrelenting. In Romania dry soils will lead to sharp declines in winter OSR plantings.