Tuesday, 29 September 2020
- After setting another new contract high on Friday, UK wheat futures (Nov-20) eased back yesterday. The Nov-20 contract closed at £181.80/t, down £0.95/t from Friday. However, May-21 prices fell £2.70/t, to £180.05/t, creating a negative carry between the nearest May and Nov contracts for the first time since August 2018.
- Sterling was a key influencer on UK futures, gaining 0.4% against the euro to £1 = €1.1000 and 0.6% against the US dollar to £1 = $1.2827 (Refinitiv). However, there was a wide range in trading during the day and sterling traded as high as £1=$1.2925, while Nov-20 UK wheat futures traded as low as £179.00/t.
- Winter wheat planting in the US reached 35% complete by 27 September (USDA) amidst favourable weather conditions, just ahead of average (33% complete) for this time of year. The US maize harvested also advanced to 15% complete, just behind average (16%).
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Further UK rapeseed price risk from US soyabean harvest?
UK delivered rapeseed prices fell sharply last week (Friday-Friday) following declines in Paris rapeseed and Chicago soyabean futures. Yesterday’s Market Report highlighted that part of the reason for this fall was good weather in the US Midwest allowing the US soyabean harvest to progress.
Last night the USDA confirmed that as at 27 September, 20% of the US soyabean crop had been harvested, ahead of 15% on average over the past 5 years. Progress was also towards the upper end of industry expectations according to a pre-report poll by Refinitiv.
Did the funds contribute to last week’s price fall?
The positions taken by speculative traders (funds, shown as managed money below) in the futures markets have the potential to exacerbate any short term fall in prices. When the funds hold net-longs and there’s a sustained price fall, it can trigger speculative traders to re-position by selling some of their previously bought contracts. A sell-off can add momentum to a fall in prices or exacerbate the extent of the fall.
The latest data shows that, as at Tuesday 22 September, funds held very large net long positions in Chicago soyabean futures. Chicago soyabean prices fell $6.34/t between 22 and 25 September, and lost another $2.30/t yesterday. Reports from Refinitiv suggest that some re-positioning has taken place since 22 September and this, in my opinion, likely contributed to the falls in Chicago soyabean and so UK rapeseed prices last week.
However, these report indicate that it’s likely that speculative traders still hold sizeable net longs, perhaps comparable to Tuesday 8 or 15 September. This means there’s a risk of a further sell off and so downward price pressure if the fall continues.
There’s potential we could see further pressure on prices as the US soyabean harvest gathers pace. There’s very little difference (carry) between spot and forward prices, which is incentivising US farmers to sell rather than store their soyabeans and could pressure spot prices.
However, this will also depend on weather conditions in South America, where planting is starting. Large areas are expected to be planted with soyabeans in Brazil and Argentina because prices are favourable compared to other crops. However, there’s risk from the current drier than usual weather so this isn’t yet certain.
In the short term, Wednesday’s data on US grain and oilseed stocks as at 1 September may also influence prices.
Any further pressure on soyabean prices could add drag rapeseed prices lower too, including in the UK.
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