French wheat caps UK grain gains: Grain Market Daily

Friday, 31 January 2020

Market Commentary

  • Chinese imports of US soyabeans, throughout December surged compared to year ago levels, on the back of the easing trade war. We could see this continue, following the agreement of phase-1 trade deal between the US and China in January.
  • However, continued demand from china is under question as the outbreak of coronavirus continues. Furthermore, despite the recent rise in China’s pig inventories the herd is still significantly reduced, capping demand.
  • According to IKAR, Russian wheat production for 2020/21 could reach 79.5Mt after a record winter wheat planted area. However, weather will be a key watch point in determining yields.
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Alice Jones

Senior Analyst

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French wheat caps UK grain gains

As previously discussed, UK wheat prices are capped by those in Europe as we meet import parity. With a falling MATIF market, this will bring the import ceiling lower and therefore pressure UK prices. UK feed wheat futures (May-20) have been following the track of MATIF closely.

To add insult to injury another fundamental pressuring domestic prices is that of sterling. Since 13 January sterling has strengthened 1.7% against the euro. When pricing against a European market the path of sterling effects the market price.

So what is next for the MATIF market?

From the beginning of December there have been major strikes in France causing some logistical headaches.

The strikes have been causing a number of problems for French trade but the export trade one hit most. FranceAriMer have predicted that France will export 12.4Mt of third country trade this season; however, currently this only sits at 5.3Mt (as at 27 January).

The Paris futures market, which is more of a European view than France alone, continued to rise through December. The May-20 Paris milling wheat futures contract gained €10.75/t from December 2nd to January 21st where it reached the highest price since end of July. The AHDB imported survey recorded gains in the German market, with German A wheat gaining £13.50/t from December 16th to January 13th.

Also, support to Paris futures came from the US. The May-20 Chicago wheat futures contract rose 7.8% in the same period as the Paris rise, equivalent of $15.43/t.

After failing to break through the €200/t mark, since 21 January Paris wheat futures (May-20) have dropped off to close yesterday at €191.25/t. That’s down €5.25 from the recent high and has continued to move lower today.

However, yesterday, Egypt’s state grain buyer, GASC, bought 180Kt of French wheat for shipment 11-25 March. The CIF price of the offered French wheat was $246.10/t. Bids, on a FOB basis, ranged from $231.50/t (French origin) to $246/t (Russian origin) with a number of origins on offer.

If this demand starts to reinvigorate French export market we may see some support to a drifting MATIF futures market. Whilst the psychological barrier of €200/t remains in sight, the volume of French wheat still to export means prices may struggle to consistently break above this level.

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