Inflation caps gains despite tight global supply: Grain market daily

• While the majority of global grain markets closed down yesterday, UK feed wheat futures resisted some of the downward pressure to close up. The Nov-22 contract gained £1.35/t from Monday’s close to settle at £310.85/t yesterday.
• With Ukraine remaining ‘offline’ in terms of major trade, it is expected that Asian markets will look to buy wheat from elsewhere from next season, including France and Romania, according to Refinitiv sources.
• Nov-22 Paris rapeseed futures settled at €769.00/t on Tuesday, up €9.00/t from the previous sessions close.

Despite the cereal supply and demand situation remaining tight, gains have been somewhat capped on the back of rising global inflation rates.

With the ongoing war in Ukraine impacting energy and food prices, as well as COVID restrictions in some parts of the world lingering, inflation rates have been increasing quite considerably. Domestically, looking at the latest data we have, consumer price inflation (CPI) increased by 9% on the year in April. From January to April, CPI was an average of 7% higher than the same period last year. The Bank of England is currently expecting inflation to rise to around 10% for the full year. That said, if inflation rates continue to rise as they have been doing, then this could be moved further.

High inflation over recent months is not just a domestic issue, with increases also seen in the EU and considerably so in the US too.

So what does this mean for UK cereal markets going forward? Rising global inflation is pushing stock and commodity markets lower. While this may be the case, the ongoing tight global supply picture is creating a price floor to markets at the moment. If supply fundamentals become even tighter, then this would likely override some of the pressure from rising inflation rates. However, if there is larger than anticipated global supply next season, then this would add further pressure to markets.

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