Monday, 5 October 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
UK wheat crop shrinks as barley rises
This morning, Defra provisionally estimated the 2020 UK wheat crop at 10.133Mt, a 37.5% drop from 2019. If confirmed this would be the smallest crop since 1981.The 2020 barley crop is estimated at 8.363Mt, a 3.9% rise from 2019 and the largest since 1988.
However, 2020 data for Wales and Northern Ireland was not available to Defra to include in the forecasts. As such, they’ve included the 2019 production for both countries to produce a UK estimate for 2020.
In 2019, yields of wheat and barley in Wales were 9% and 16% above the 2014-2018 average, while in Northern Ireland they were 1% and 13% above respectively. Our harvest progress reports suggest that in general winter barley and wheat yields are well below average in 2020, while spring barley yields are slightly above. To us this suggests that the UK crop size for wheat especially may be slightly lower than estimated by Defra.
- 6 October - the first estimates of the cereal and oilseed rape harvest in Scotland by the Scottish government.
- 8 October - information on the UK areas and yields used by Defra, along with the provisional size of the 2020 oat and rapeseed crops.
An increase in Russian production figures was overshadowed by a bullish US grain stocks report, which lead to global wheat markets experiencing a short-term rally. UK prices need to remain high relative to world markets due to our small crop, but the arrival of imports is now limiting gains.
Maize received support this week off the back of much lower than expected US stocks. However, pressure from the continuing US harvest, along with uncertainty over future demand due to the continuing coronavirus pandemic may cap gains.
Global production remains high and domestic production is provisionally estimated at a 32 year high. As such, feed barley needs to maintain its notable discount to feed wheat and continues to incentivise animal feed usage.
Global grain markets
Global grain futures
Global markets saw a spike last week after the latest quarterly US grain stocks were released on Wednesday and showed maize stocks at 50.7Mt, 10% lower than in September 2019. Wheat stocks were at 58.7Mt, down 8% compared to the same point last year. However, an industry poll before the report’s release showed expectations for a small year on year rise in maize stocks and smaller drop in wheat stocks.
This difference led to Chicago Dec-20 wheat futures rallying more than $10/t on Wednesday to $212.36/t. However, since then the contract lost some of these gains to close at $210.61/t on Friday, an increase of $10.65/t since last Friday’s close. Paris wheat futures (Dec-20) also firmed off the back of the news.
Chicago Dec-20 maize also rallied over $5/t on Wednesday to close at $149.21/t. Maize stayed strong throughout the rest of the week and closed at $149.51/t on Friday, an increase of $5.71/t from the previous Friday’s close.
The Russian Agricultural Ministry published bearish news that their total grain production for harvest 2020 would be more than 125Mt, up 2.5Mt from the previous estimate. The latest estimate includes no less than 82Mt of wheat, up 7Mt from the previous estimate and well ahead of last year’s wheat production of 74.5Mt.
Both old (Nov-20) and new crop (Nov-21) London wheat futures also found support from the US stocks report, with the contracts firming £3.50/t and £3.90/t respectively on Wednesday. However, these gains were mostly lost through the week overall, partly due to sterling strengthening against the euro and US dollar.
This week, Nov-20 futures moved to a premium over May-21 (£1.00/t as at Friday’s close). However, the Nov-20 contract is now becoming increasingly detached from the physical market ahead of its last trading day on 23 November. In contrast, forward prices are still well above spot prices in the physical market.
Last week, AHDB released the August usage data which has shown a large swing to imported wheat used in the flour milling industry. It’s unusual to see these imported tonnages appearing so early in the season. Strong import demand into the North West was reflected in Friday’s UK delivered prices, where there was some narrowing of northern milling wheat premiums over the rest of the country. Throughout September, North West milling wheat has consistently been at least a £6/t premium to the Midlands, however, last week this gap narrowed to just £4/t. This is showing a reduced demand for home grown wheat at the expensive of imported.
Barley used in brewing, malting and distilling has recovered slightly from previous month’s levels in August, potentially linked to the ‘Eat Out to Help Out’ scheme. However, usage was still 9.8% lower compared with August 2019.
For the compound animal feed sector, barley demand was up 18% year on year in August, likely supported by the current feed barley price discount to feed wheat.
In the near-term, the expected large Canadian and Australian crops are the key factors for markets, along with the slip back in crude oil prices which poses a risk to vegetable oil demand for biodiesel. However, new crop conditions will need to be monitored closely though autumn.
Markets have been supported by lower than expected US stocks. Speculative traders buying has been a positive factor which may be short-lived without any more bullish fundamental news. The future direction demands on Chinese import demand and planting in South America.
Global oilseed markets
Global oilseed futures
Global oilseed prices gained sharply last week, led by Chicago soyabeans after the US stock figure (released on Wednesday) was lower than expected. At 1 September, US soyabean stocks were 42% lower than a year earlier and below the average expectation for a 37% drop in an industry poll by Refintiv. This implies higher demand for US soyabean and a lower carry over into 2020/21.
Nearby Brent crude oil futures slipped back below $40/barrel on Friday, amid uncertainty as coronavirus cases continue to rise in Europe and after the US President tested positive for the virus. The nearby price is now at its lowest level since mid-June, reducing the attractiveness of biodiesel made from vegetable oils. This was likely one of the factors behind the sharp fall in soy oil prices last week.
Despite price falls the week before, the Funds held even larger net longs in Chicago soyabeans on Tuesday 29 September than 22 September. Reports by Refinitv suggest this net long could have reached a record size by the end of the week. This means the risk of an exaggerated price drop from any bearish news is still there, or has even grown.
Argentina also temporarily cut its tax on soyabeans exports from 33% to 30% to try and raise revenue. The taxes on soyameal and soy oil exports have also been cut, and all these rates will increase in stages so they are back to September levels in January. This may cause some switching of export origin to Argentina.
UK delivered oilseed prices
Paris rapeseed futures followed Chicago soyabean futures higher. However, this support did not follow through into UK delivered prices, which were lower Friday-Friday, partly because sterling lifted 1.5% against the US dollar and 0.7% against the euro. At Friday’s close £1 = $1.2931 and £1 = €1.1004.
Dry weather in Canada, boosted the rapeseed (canola) harvest progress. In Saskatchewan, 80% of the crop was harvested by 28 September, well ahead of last year’s delayed harvest (24%).
Looking further ahead, dry conditions are still a concern for 2021 rapeseed crops in the Black Sea area and parts of Europe, though recent rain may have helped crops in France. This morning, consultants Strategie Grains forecast the EU and UK 2021 area as “down slightly” from harvest 2020 (via Refinitiv).