Monday, 8 June 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
While dryness is still a concern for a number of regions most notably parts of Russia, rainfall in the EU and harvest pressure for US futures could cap any gains.
Stronger crude oil prices, improved ethanol production and a large net-short position held by managed money funds are likely to support new-crop maize values.
With maize prices lifting and the domestic market feeling slightly tighter the discount of barley to wheat may narrow slightly. That said, production is expected to remain large globally, capping significant gains.
Global grain markets
Global grain futures
Movements in global grain markets were mixed last week, with wheat prices largely tracking a weather led sentiment.
Chicago maize futures (Dec-20) showed some signs of strength, up $2.56/t, at $135.92/t, following support for oil prices and further growth in weekly ethanol production. The large net-short position held by managed money funds in Chicago corn futures could exacerbate any sustained move higher, should traders look to buy back their positions.
Global wheat futures gained early support last week, climbing on weather uncertainty with dry conditions continuing to prevail in the Black Sea. Markets fell back later in the week on a stronger dollar and early US harvest pressure.
Last week also saw the first new crop tender from Egypt’s state grain buyer GASC, who purchased two cargoes of Ukrainian wheat. Russian offers were notably not competitive.
Looking ahead to this week, rain is expected in Western and Northern Europe as well as parts of Russia. This will help to alleviate some of the pressure caused by dryness elsewhere. However, for the key Russian regions of Krasnodar, Rostov and Volgograd a lack of rainfall is still a watch point.
Important information out this week – US crop progress (Monday), USDA supply and demand estimates (Thursday)
Domestic wheat futures bucked the global trend last week, ending £4.30/t lower Friday-Friday, at £170.00/t. Strength of sterling against the dollar and euro was a key factor behind the move lower. With UK wheat set to trade at, or near, import parity for much of next season, movements in sterling will be key, alongside international pricing, in setting the tone for domestic markets.
Sterling did weaken considerably against the euro on Thursday, as the EU announced its latest economic stimulus in response to economic challenges posed by coronavirus. This in turn supported UK grains.
Weekly movements in UK delivered cereals were also mixed last week, depending on home and delivery period. New crop milling premiums continue to show strength amidst uncertain supplies, with the premium of Group 1 milling wheat (delivered North West, Nov-20) over Nov-20 feed wheat futures quoted at £41.25/t.
Gains in the energy sector supported oilseed rape last week. However, further increases may be limited with a fundamentally bearish outlook for global oilseed rape for the next marketing year.
A U-turn in Chinese purchases of US soyabeans last week supported prices significantly. If China commits to longer term purchases of US soyabeans, we could see further support.
Global oilseed markets
Global oilseed futures
US soyabean futures (Nov-20) closed on Friday at $323.16/t, gaining $10.20/t across the week. There were reportedly successive purchases of US soyabeans from China, which has significantly supported the market.
Last week was a busy week for US soyabean exports, with 1.026Mt in confirmed export sales to China and “unknown destinations”. This is very supportive for US soyabeans markets after state-owned Chinese firms were asked to pause purchases of some US agricultural products, in a recent escalation of tensions between China and the US.
Malaysian palm oil futures (Aug-20) gained 2.4% across the week. Support came as the Malaysian government unveils plans to fully exempt palm oil from export duty for the rest of this year, in an effort to boost export shipments in the second half of the year.
Brent crude oil closed at $42.30/barrel on Friday, gaining $6.93/barrel on the Friday before. As energy exporting countries commit to oil cuts while the global economy starts up, crude oil is significantly supported again.
Gains in crude oil and purchases of US soyabeans from China are supporting the whole vegetable oil complex, as nearby US soy oil futures gained 2.8% across the week to close at $620.38/t.
UK delivered oilseed prices
The recent rally in crude oil prices is assisting gains within oilseed rape values, with nearby rapeseed oil (FOB Rotterdam) quoted at €740.00/t on Friday, gaining €15.00/t on the week before.
Furthermore, Paris rapeseed futures (Nov-20) closed Friday at €379.25/t, gaining €5.00/t across the week.
The UK domestic price was unable to capitalise on this weekly gain in Paris futures, as sterling strengthened 0.9% against the Euro to close on Friday at £1 = €1.122. The UK delivered oilseed price (into Erith) on Friday was quoted at £330.50/t for harvest delivery, gaining £0.50/t on the week before.