Monday, 12 August 2019
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Global wheat markets have drifted in anticipation of today’s WASDE. This will likely continue to highlight large crops across the EU and Black Sea in a well-supplied global wheat market.
The US crop area and production remains uncertain. However, Managed Money fund positions have scaled back their long positions, and much of this uncertainty may well have been priced in.
UK feed barley is pricing at competitive levels against other EU countries, aided by a weakening pound. The uncertain trading relationship after October is likely to keep markets pressured.
Global grain markets
Global grain futures
Global grain markets lacked clear direction last week in anticipation of today’s WASDE and much awaited update to the US planted area.
The updated US maize area will likely be the key market driver this week. Should the revised area be below market expectations, this will offer support to grain markets. However, Managed Money fund positions have continued to scale back their net-long positions and a reduced area may have been priced in already.
Longer-term, the development of the late planted US maize crop is behind average. Furthermore, the US Midwest forecast is for unfavourably dry weather across Illinois, Indiana and Ohio, which may offer longer term support.
In wheat markets, near record Ukrainian production is beginning to be realised. With 93% of the area harvested (as at 5 August), yields are up over 11% year on year, making a 28Mt crop possible, adding to strong Black Sea export competition.
UK feed wheat futures continue to be largely driven by the volatility of currency. A further weakening of the pound relative to the euro left £1=€1.074 on Friday 9 August. Sterling has lost 1.5% of its value in a week, and reached lows not recorded since 2009.
As financial markets are increasingly pricing in the possibility of a no deal Brexit, currency support has, to a degree, shielded domestic wheat prices from what has been a bearish global grain market. Although, the uncertain trading relationship after October is likely to keep markets pressured.
Physical UK oilseed rape prices continue to find support from weak sterling. The tight EU supply outlook also continues to offer longer-term support.
Although a jump in US soyabean futures was seen last week, the long-term outlook remains bearish. With China-US trade tensions escalating, high US stocks will continue to weigh on the market.
Global oilseed markets
Global oilseed futures
Soyabean futures tracked sideways at the beginning of last week but jumped $9.19/t from Wednesday to Friday's close. Chinese Dalian soyabean oil futures (Nov-19) reached a contract high at Friday's close due to supply uncertainty. This drove some of the movement in markets along with crop condition concerns.
Longer-term, the China-US trade dispute will continue to weigh heavy on the market. Today’s WASDE report should add some certainty to the US area of soyabeans but will only move the market significantly if it differs greatly from trade expectations.
Soyabean stocks, old and new-crop (expectations), will likely remain high even if a cut to area is reported. US managed money funds continued to increase their short position last week, to the largest net-short position since early June.
Once the European oilseed rape harvest is over, and production is confirmed, US markets will become a key driver once again.
UK delivered oilseed prices
Although there was some movement in Paris rapeseed futures throughout the week, from Friday to Friday, Nov-19 futures lost just €0.25/t to close at €374.25/t. However, UK physical prices found further support from the sterling-euro exchange rate. The value of the pound against the euro was the lowest since 2009 at Fridays close.
Weakening sterling counteracted Paris rapeseed futures movement. UK physical prices for November delivery into Erith gained a further £3.50/t from the previous week at £350.00/t. With some crops yet to be harvested in the north of England, concerns of poor quality are heightened by wet weather.