El Niño – key factor in grain price direction: Grain market daily

Friday, 17 November 2023

Market commentary

  • UK feed wheat futures (May-24) closed yesterday at £199.00/t, down £1.05/t on Wednesday’s close. New crop futures (Nov-24) closed at £207.60/t, down £1.15/t over the same period.
  • The domestic wheat market followed both the Paris and Chicago wheat markets down yesterday. Pressuring the Chicago market was weak US demand as the USDA reported export sales for 2023/24 (to week ending 09 Nov) at 176.3 Kt, below trade expectations of 250-500 Kt.
  • Yesterday, the International Grains Council raised both their maize and wheat crop production forecasts for 2023/24 by 4 Mt and 2 Mt, respectively. This is mostly down to improved expectations for US maize, as well as wheat crops in Ukraine, Russia and Turkey.
  • Paris rapeseed futures (May-24) closed yesterday at €444.50/t, down €3.50/t on Wednesday’s close. The Paris rapeseed market was pressured with Chicago soyabean futures as welcome rains are forecast in Brazil providing relief to the soyabean crop.
  • What are farm tenants’ rights when it comes to carbon markets? The latest analysis has been released and available using this link.

El Niño – key factor in grain price direction

Despite harvest 2023 for many being an expensive crop to grow due to high input costs, global grain prices have been pressured over recent months. Black Sea grain has continued to flow out of the region since the ceasing of the Black Sea Grain Initiative. Further to that, large Russian supplies have been pressuring the market too with strong exports.

Fundamentally total grain markets are relatively well supplied for this marketing year (2023/24), with global grain production expected to grow by 2% as forecast by the USDA, with increases in sorghum and maize contributing to this rise. However, for other grains, global production is expected to reduce year-on-year.

  A graph showing global grain production

In 2023/24, the globe is expected to produce an extra 63.7 Mt of maize, and this is expected to be the big bear in the market. A large proportion of this rise in maize production is a result of a larger US maize crop forecast this season. However, as mentioned above most other grain production is expected to reduce, increasing the global reliance on this maize.

Brazilian supplies are a large contributor to global supply of maize. Over the past five years (2018/19–2022/23), Brazil supply has accounted for, on average, 9% of global maize supply. The country is forecast to produce 119Mt of maize this growing cycle according to Conab. However, 76% of this crop isn’t in the ground yet. Planting should start from February 2024.

Weather in this part of the world is far from stable currently, with dryness in the north of the country and excessive rains in the south as a typical El Niño weather pattern plays out. Previous analysis shows that extreme El Niño events can have impacts on the second Brazilian maize crop.

Latest information from the US climate prediction centre sees El Niño conditions forecast to persist into December–February. This weather phenomenon is expected to subdue in the northern hemisphere spring, with a transition to neutral weather expected between May to July 2024.

Grain markets are relying on this large maize supply to balance global total grains supply and demand, and the weather forecasts into 2024 could possibly bring challenges to the plantings and development of this Brazilian maize crop – something to monitor considering the current bearish outlook for grain markets.

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