Monday, 3 February 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
A bearish global commodity sentiment has continued to weigh on markets. Improved Russian winter wheat could exert longer term pressure.
Amid a global downturn in commodities, a surge in US export sales potentially offers longer term price support.
Domestic barley markets are already at export competitive levels and continue to track sideways.
Global grain markets
Global grain futures
Global grain markets continued to have a bearish tone last week as the potential impact of coronavirus has swung the recent sentiment to that of a bearish tone. As the longer-term impact upon global demand is as of yet unknown, continued or accelerated spread will maintain pressure on global markets.
Further pressure from the Black Sea could maintain the bearish tone to global markets amid a weakening of the ruble, raising domestic prices and potentially increasing farmer selling. Although there are some regions of poor winter crops, the overall condition of the Russian winter wheat crop is also reported to be in a better condition than last year, with just 4% of winter crops in bad condition, down from 8% in the previous year.
Yet amid the global downturn, maize has been provided a degree of support due to a surge in US export sales, with two consecutive weeks of over 1Mt. US managed money have reducing their short positions in response to the longer-term price support.
With new-crop UK feed wheat futures having risen to a premium over that of Paris milling wheat, domestic market pricing continues to be somewhat at the mercy of global markets and exchange rates.
As such domestic prices have been weighed down by the global downturn in commodity markets; old-crop May-20 down £4.25/t, and new-crop Nov-20 losing £5.20/t from Friday 24 to Friday 31.
While wheat has been under pressure, barley has not recorded the same degree of loss, continuing to price at an export competitive level. With domestic wheat falling and barley finding export support, the barley discount has narrowed.
A global reduction in demand for commodities has pressured the price of crude oil which in turn has pressured rapeseed prices.
Epidemic breakout of the coronavirus going forward may stunt economic growth in China, reducing demand. Furthermore, the soyabean harvest underway in Brazil is showing optimistic yields, possibly adding to a longer-term bearish outlook.
Global oilseed markets
Global oilseed futures
Chicago soyabean futures (Mar-20) closed on Friday at $320.59, down 4.1% on the Friday before. This contract is down 8.8% throughout January, its biggest monthly loss since June 2018.
The epidemic break out of the coronavirus is feared to reduce Chinese demand for oilseeds. Moreover, a lack of exports of US soyabean to China has suppressed markets throughout January, despite signing the 'Phase 1' trade deal.
Further to that, there is speculation that the coronavirus has hindered economic growth within China, which in turn will reduce demand for palm oil. China is the second largest purchaser of Malaysian palm oil.
Nearby Malaysian palm oil futures reduced by 16.81% over January, its biggest monthly drop since August 2014. Pressure on palm oil markets started in the middle of January, when India restricted imports of refined grades of palm oil and informally stopped purchases from Malaysia.
On Saturday, India has raised import tax on crude palm oil to 44% from 37.5%, it’s advocated that this is to boost local oilseed production. The trade dispute between Malaysia and India will be something to observe into the future. While production of the oil remains stable, political discourse and the coronavirus epidemic could leave a shortfall in demand.
UK delivered oilseed prices
Paris rapeseed futures (May-20) closed on Friday at €392.50/t, down €10.25/t on the Friday before, this contract has reduced by 4.2% throughout the month.
Last week, UK delivered rapeseed (Erith, Feb-20) was down by £9.50, quoted at £333.50/t. This is expected as there has been a significant reduction in continental pricing, and strengthening pound against the euro, closing Friday at £1 = €1.1899.
This reduction in rapeseed markets has intrinsic links with the fall in crude oil markets. Nearby Brent Crude has fallen from $66.25/barrel on 2 Jan to $58.16/barrel on Friday. The outbreak of the coronavirus has meant there is uncertainty around trade flows and global demand.