What to watch: Could a deal between China and the US be on the cards as the two presidents meet?
UK wheat prices have firmed slightly, with weaker sterling helping.
Political tensions between Ukraine and Russia could impact on global markets.
And there was uncertainty across the oilseeds markets as they react to political statements.
May 19 LIFFE wheat futures closed on Wednesday, November 28, at £173.25/tonne, level on the week.
UK wheat prices have firmed slightly. Last week ended with a four-day rally in prices and, although this week has seen mixed price activity, wheat is still holding onto some of the gains.
Weaker sterling has been helping prices and is really the only factor driving markets higher at the moment. Consumers have good cover and, other than a few logistical challenges, there is an ample supply of wheat to see them through to the New Year.
Presently, new crop wheat is proving attractive to farmers, with good forward values available. Due to the open autumn and the need for some growers to redrill following poor oilseed rape establishment, a good amount of winter wheat has gone into the ground this season.
Across the board, crops are looking well.
Geopolitical tensions between Russia and Ukraine are on the rise again, but they did little to support EU grain prices so far. On Sunday, three Ukrainian warships were seized by Russia in the Kerch Strait [between the Black Sea and the Azov Sea] and as such, exports were blocked for a few hours.
However, according to the Ukrainian government, which introduced martial law for 60 days, grain shipments are back to normal. We should also consider that only a marginal part of the Ukrainian exports are passing through the strait.
Matif wheat is still stuck in its €10 range between €199 and €209/tonne on the March 2019 contract due to lagging EU grain exports. Consequently, any new business is good news and Algeria’s OAIC who bought a hefty 600,000t of wheat earlier on could source a sizeable volume in France.
However, Argentina, where the wheat quality seems to be unaffected by the October frost episode and November excessive rainfall, is now directly competing against the EU toward North African destinations.
On the oilseeds complex, EU rapeseed touched a two-month low on Tuesday amid the sell-off in crude oil - Brent prices are down more than 6 per cent since last Wednesday - which in turn pushed palm oil to its lowest level since early 2009.
However, the shortage of rapeseed oil, which is currently in high demand in Europe, the multi-year low planted area [of rapeseed] for the 2019 EU harvest and optimism over the US-China trade help the oilseed market to embark on a recovery move.
The presidents of the two largest economies in the world - the US and China - are set to meet at the end of the week in Argentina where they could well determine the next move for oilseeds prices.
For now, funds who have built a record net short position on CBOT soybeans and soy oil for this time of the season have started to liquidate their position, just in case ‘good’ news comes out.
On the cereals front, political tensions in the Black Sea and record Russian wheat exports have done very little to support prices with the soon-expiring Dec-18 Chicago wheat back below the psychological $5/bu mark.
As such, a new round of tenders from key wheat-importing countries hit the market, with Egypt’s GASC booking 240,000t last Thursday (of which 120,000t from the US) and more recently a hefty 600,000t purchase from Algeria. Seasonal trends and fundamentals are supportive to the grain market but politics remain an unpredictable component.
The current yo-yo on the Chicago bean market leaves little clear picture of future price movement, as politicians continue to make varied comments over the upcoming US/China talks.
Yesterday’s positive slant supported the market, although Trump’s comments over further raising tariffs on Chinese imports, from 10 per cent to 25 per cent, will do little to expand bull’s enthusiasm to chase the markets higher.
Bean oil has continued its move away from this week’s contract lows, following a revision to the blenders’ credit ruling.
South America is again seeing rain across much of the main Argentine and Brazilian growing region, stalling sowings but providing adequate moisture for crop development.
Cold and snow in the central US will prevent the rest of the bean harvest from being completed.
MATIF rapeseed is following the bean market higher, with a similar story for Canadian canola, with little additional fundamentals beyond the movement in Chicago.
Asian markets have been mixed lately, with beans, bean oil and rape oil extending recent losses, while meal and palm oil have firmed.
Trade speculation will intensify as we move towards the G20 summit, with the outcome determining the next directional move in prices.
With cheap new crop South American premiums and US soybean ending stocks looking to target one billion bushels, it remains apparent that Chicago soybeans will find it hard to sustain any rally without a US/Chinese trade deal.