Monday, 3 August 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Increased production in Russia, the world’s top exporter would weigh on global markets, though there’s still some uncertainty until the combines reach spring wheat areas. UK yields will influence our relationship to global markets.
Good crop prospects in the US and Ukraine increase confidence about global supplies, despite concerns in France.
Global supplies continue to look comfortable as malting demand is curbed by the coronavirus pandemic and the grain faces tough competition for feed demand from maize.
Global grain markets
Global grain futures
Global wheat prices declined last week after Russian consultancy IKAR increased its forecast for the Russian crop from 76.5Mt to 78.0Mt last Monday (27 Jul). However, they have upped it again this morning (3 Aug) to 79.5Mt.
With half the Russian wheat area harvested, the larger forecasts give potential for increased confidence about supplies from the largest supplier of wheat onto the world market last season. There is still some uncertainty though until the combines reach the spring wheat areas due to the hot, dry weather these area experienced as crops entered grain fill.
The pressure from these forecasts and European harvest progression, more than offset further reductions to EU-27 yield forecasts. Egypt again bought Russian and Ukrainian wheat last week, with trade reports suggesting that European grain was uncompetitive.
Meanwhile, global maize prices fell under pressure from continued good weather in the US, increasing optimism that the forecast near record crop can be realised. This more than outweighed concerns about the French maize crop due to hot, dry weather. Crops in both countries are in their ‘silking’ stage, which is critical for final yields.
EU-27 barley production was cut by 2.0Mt by the EU Commission to 54.1Mt, compared to 55.1Mt last year.
UK wheat futures (Nov-20) followed global markets lower last week, losing most ground on Monday and Tuesday before trading around £166/t in the later part of the week. The contract closed at £165.85/t on Friday. Delivered prices generally followed UK futures lower (down £1.50/t Thu-Thu), though there were some regional differences.
AHDB’s first harvest progress report of 2020 showed the GB winter barley harvest is so far in line with typical progress, with 56% cut by 28 July. Winter barley yields to date have averaged around 4-10% below the 5-year average.
The wheat harvest has also started with small areas cut in the east. The final size and quality of the UK crop will influence the amount and type of grain we need to import, plus when in the season. This will impact where our imports are sourced from and the level of price premium to global markets.
OSR remains neutral until harvest transpires an accurate view of global supply. If current forecasts are confirmed, then the market will require a substantial increase in demand.
Momentarily support for soyabeans is in the US biodiesel sector. However, the longer-term outlook will depend on if this demand continues as the global economy kick starts.
Global oilseed markets
Global oilseed futures
Chicago soyabeans futures (Nov-20) closed Friday at $327.90, down $2.48/t on the previous Friday. Although down, soyabeans started to gather some support towards the end of the week.
Support has come from Chicago soyoil futures (Dec-20) which closed Friday at $678.13/t, up $8.59/t across the week. What is driving this is data released from the U.S. Energy Information Administration (EIA) showing that the amount of soyoil used for biodiesel in May rose to 778 million lbs, up from 672 million lbs a month earlier. Further to that, biodiesel production increased to 147 million gallons in May, up from 144 million gallons in April.
There is support in palm oil as the commodity tracks other oils. Malaysian palm oil futures (delivery 3 months from today) gained 16.5% throughout July, the largest monthly gain since Sep 2015. According to cargo surveyor Intertek Testing Services, Malaysian exports in July are up 5.8% on the month.
Support also came in the week when Indonesia announced plans to implement its B40 biodiesel implementation by July 2021.
UK delivered oilseed prices
There was minor support across the week for Paris rapeseed futures (Nov-20) which closed Friday at €381.75/t, up €1.75/t on Friday before.
Gains were not encapsulated in UK delivered rapeseed prices where Nov-20 delivery (into Liverpool) was at £351.00/t, down £1.50/t across the week. This was due to sterling strengthening against the euro by 1.33% last week, to close Friday at £1 = €1.1112.
The first GB harvest report released last week showed winter OSR harvest 49% complete, with national yields currently estimated at 2.5 – 2.9t/ha, down 15-30% on the 5-year-average.
Consultancy Stratégie Grains has increased their forecast for this year’s rapeseed harvest in the EU + UK to 16.79Mt from 16.54Mt after six consecutive monthly downgrades. The upward revision was mainly due to favourable conditions in Poland and Lithuania. Despite this, the EU is expected to import a record 6.1Mt of OSR during the 2021/21 season.