Monday, 4 May 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Large new crop supplies, and lower demand forecasts from the IGC add pressure to the long-term market. Short-term price direction largely dictated by weather.
While the fundamentals are still bearish, questions remain over how much more bearish the market can get. Technical support has lifted prices of late.
With large barley supplies expected globally, prices are maintaining a strong discount to wheat in order to maintain demand.
Global grain markets
Global grain futures
New crop wheat futures saw significant declines last week overall, that said there was some support later in the week for Paris milling wheat futures, likely a technical bounce following a run of declines.
Recent support from dry weather conditions across Europe and the Black Sea faded. Going forward the weather in Southern Russia and Ukraine looks set to continue relieving recent dryness. Similarly, conditions in France, Germany and the Baltics are set wetter than average, which again may continue to alleviate recent dryness concerns.
In reaction to recent dry conditions, the International Grains Council lowered its estimate of global wheat production in 2020/21 by 4.1Mt, last week. Despite the cuts to the production forecast, stocks are still estimated to grow with a reduction to global grain consumption levels in the wake of the ongoing coronavirus pandemic.
Maize markets continue to lack fundamental support. Ethanol demand is weak in both North and South America, whilst large crops are expected to be planted for 2020/21 on both continents. Despite the lack of demand for maize, low corn prices have garnered some technical support in the past few sessions.
With May-20 futures winding down, price discovery for old crop grains is challenged; this is not helped by mixed signals for domestic grain demand, driven by the ongoing coronavirus pandemic. Delivered cereal prices declined on the whole last week, with movements in feed wheat mixed.
The premium of milling wheat (delivered North West, May), over futures extended again last week, quoted at £38.50/t. Whilst demand is not especially strong for milling wheat, premiums are holding firmer in an attempt to keep nearby grain coming onto the market.
Sterling ended the week lower against both the euro and dollar, although it continues to trade in a tight channel. Movements out of this channel, which will largely be driven by UK macroeconomics, will be important for UK price formation.
Successive weeks of reduced global mobility is weighing on international travel. This is having a knock-on effect on the vegetable oil complex.
Pre-coronavirus soyabeans were globally bearish, and the pandemic has exacerbated this. Large crops from both Argentina and Brazil will add to global stocks going into the new marketing year, as lacklustre demand continues.
Global oilseed markets
Global oilseed futures
US soyabean futures (Jul-20) closed trading on Friday at $312.14/t, up $3.67/t. On Thursday, the contract closed at a week high as there was speculation that China had purchased 264kt of US soyabeans, which was later confirmed by the USDA.
This gain was later lost with potential trade tensions heightened as President Trump stated the Phase 1 trade deal was of secondary importance to the coronavirus pandemic, threatening new tariffs on China over the outbreak.
There is additional pressure on soyabeans globally with weaker demand for livestock feed. Several meat packing plants in the US have closed or reduced output rates due to the coronavirus.
Nearby Brent crude oil closed on Friday at $26.44/barrel, gaining $5.00/barrel across the week. Commodities within the oilseed complex shadowed this gain. Chicago soya oil (nearby) closed at $576.29/t on Friday, gaining $24.03/t across the week. Moreover, Malaysian palm oil futures (July-20) gained across to week up 0.63% to Thursday’s close.
What will be a key watch point is the US/China relations as global lockdowns start to ease from the coronavirus. We could see support for crude oil, which in turn will support agricultural commodities, however if tensions rise this could slow global economic recovery from the pandemic.
UK delivered oilseed prices
Paris rapeseed futures (Aug-20) closed on Thursday at €367.50/t, gaining €3.00/t across the week, shadowing the gains from crude oil.
UK delivered price into Erith (May-20) was quoted at £319.50/t, unchanged from the week before. A strengthening in sterling throughout the week meant the domestic market was unable to echo the gains seen in Paris futures. However, sterling’s strength was diminished into Friday’s trade and closed weaker against the euro across the week, down 0.39% at £1 = €1.138. With delivered oilseed prices quoted on a Friday morning, the weakness of sterling to Friday's close is not fully reflected in delivered oilseed values
Demand for rape oil is expected to recover this coming autumn as the transport sector recovers, however prices going into winter 2021 are not expected to spike greatly unless there is a weather event. Further to that, there is a large surplus of canola expected in Canada at the end of the current marketing year.