Wednesday, 10 May 2023
- May-23 UK feed wheat futures closed at £184.00/t yesterday, down £4.00/t from Fridays close. The Nov-23 contract (new crop) lost £5.55/t over the same period, to slip back below £200/t, settling at £196.75/t. UK markets followed the downward movement in global prices yesterday, as optimism over the renewal of the Ukraine export corridor deal and improving US weather conditions weighed on markets.
- After there were no inspections of inbound or outbound vessels from Ukraine on Sunday and Monday, the UN has said that they resumed on Tuesday. The Turkish Defence Minister said that they will be working to continue the export deal on 18 May, without disruptions (Refinitiv).
- Nov-23 Paris rapeseed futures settled at €440.75/t yesterday, up €5.25/t from Monday’s close, supported by upward movements in the wider oil markets.
Lead Analyst (Cereals & Oilseeds)
Eastern Europe’s swelling surplus
Naturally, there has been a lot of coverage of late about the uncertainty over the Ukraine export deal (Black Sea Initiative) which is due to expire in just over a week, as well as the continuation of cheap Black Sea wheat flooding the global export market. What has been somewhat overlooked is the metaphorical storm that is brewing in Eastern Europe, in particular Poland, at the moment and what impact this could have on markets as we approach harvest here in the UK.
In 2022, Poland produced a record wheat crop of 13.4Mt, on the back of a combination of record yields and a larger planted area (EU Commission). It’s been reported that after the initial spike in prices last year, as a result of the invasion of Ukraine, Polish producers were advised to hang tight and not sell as prices ‘will go back up’. But they never did, as abundant Russian supplies continued to weigh down on markets. With a lack of farmer selling, processors imported grain over the border from Ukraine to meet demand. Poland is now in a situation where growers have got large surpluses of wheat in store, as well as abundant stocks of imported Ukrainian grain from lack of farmer selling. Romania and Bulgaria have also been accumulating stocks, with cheap Ukrainian grain coming in, in a year when these countries exports have been slow.
With such high supplies accumulating in Eastern Europe, prices are being pressured too. The European Commission have adopted temporary measures on wheat, maize, rapeseed and sunflower seed exports from Ukraine to Bulgaria, Hungary, Poland, Romania and Slovakia. These commodities can only enter these countries in transit to a further destination, which will last until 5 June.
It is unlikely that we will see a seismic shift in market direction, especially if the Black Sea Initiative is extended (which is looking more likely now). Even if it is not extended, it’s likely that the only way Ukraine will be able to shift commodities will be by truck/rail through its neighbouring countries. This would have the potential to add to the already hefty stocks in these countries and weigh on their domestic markets further.
It may not seem it with the dreary weather of late, but we are fast approaching harvest in Europe and here in the UK. With such an accumulation of stocks in Eastern Europe, we could see their export campaigns ramping up. This, on top of our own hefty surplus from larger supplies and lacklustre demand in 2022/23, we could see our own domestic markets being pressured further, by cheap European wheat on the export market.
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