Market Report - 12 October 2020

Monday, 12 October 2020

This week's view of grain and oilseed markets, including a summary of both UK and global activity.

Grains

Wheat

Maize

Barley

Concerns around Russian and US planting conditions for the 2021 crop have been outweighed somewhat by a projected rise in global stocks by the USDA. Domestically a smaller crop is keeping prices buoyant, although gains are being capped by import demand.

Support was received this week on the back of a projected fall in global end-season stocks in the latest WASDE. However, there remains to be a level of demand uncertainty due to COVID-19.

Global and domestic barley supply levels remain relatively high. Defra pegged UK production for 2020 up on the year, at 8.4Mt.

Global grain markets

Global grain futures

Global maize prices found support at the end of last week, driven by the release of the latest USDA supply and demand estimates (WASDE) on Friday. The USDA cut its forecast for 2020/21 US maize production by 4.5Mt from its previous estimate as a result of adverse conditions affecting total area. Despite a cut in domestic feed and ethanol usage, end-season stocks are expected to be lower, contributing to a drop in global stocks.

In terms of wheat, the latest USDA report recorded higher global supplies on the back of a larger projected Russian crop. This has resulted in projected larger end-season stocks, as consumption was only upped by a fraction in comparison.

Chicago wheat futures (Dec-20) closed at the highest level in nearly two years on Wednesday (7 October) at $223.20/t, on the back of concerns around the effect of dryness on US and Russian plantings. These concerns were elevated somewhat in the run up to the WASDE release, although prices came back down, to close at $218.14/t, on Friday. Despite the drop from midweek, Dec-20 Chicago wheat futures still gained $7.53/t week-on-week.

Russian wheat export prices increased last week on the back of strong export demand and potential tighter supply if dry weather further impacts the potential of the 2021 crop. Russian 12.5% protein wheat loaded from Black Sea ports FOB prices (delivered in October) were at $245/t, up $8/t week-on-week, according to Refinitiv.

UK focus

Delivered cereals

Nov-20 UK feed wheat futures found support from global markets, gaining £2.50/t Friday-to-Friday. As at 9 October, the Nov-21 contract was at a £27.00/t discount to Nov-20. With the rise in futures prices, combined with the need for imports capping gains somewhat, physical price premiums for November delivery continue to be squeezed in some regions.

In August, the UK imported 217.9Kt of wheat, the largest monthly volume received in two years. Likewise, maize imports reached 304Kt in August, the highest level since January 2019. With the smallest domestic wheat crop since the early 1980’s and the possibility of tariffs looming next year, it is expected that UK flour millers will be importing more wheat this side of Christmas. Likewise, with maize pricing competitively into certain UK regions, especially in the North and Northern Ireland, it is likely that more maize will be coming in for use in animal feed/bioethanol in these areas. On the flip side, barley exports remained strong in August, at 104.9Kt.

On Thursday Defra released provisional UK cereal areas, yields and production for harvest 2020. Wheat and barley production is estimated at 10.1Mt (38% down y-o-y) and 8.4Mt (4% up y-o-y) respectively. Oat production is forecast to be 6% down on the year at 1.0Mt, while OSR output is estimated at 1.1Mt, 39% lower than 2019.


Oilseeds

Oilseed Rape

Soyabeans

Rapeseed markets are benefitting from gains in soyabean markets. This will look to likely continue until support in soyabean markets falls away. Crop conditions across the Black Sea may offer support if the region stays dry. Australian origin EU rapeseed imports in the latter half of this season should help to supply the EU deficit.

In the short term, the price rally of recent weeks has supported global oilseed markets. Longer term will depend on further Chinese buying and South American crop conditions. However, sentiment in soyabean markets points towards a bullish outlook currently.

Global oilseed markets

Global oilseed futures

Last week saw large rises for global oilseed prices. Soyabean prices in particular were buoyed by repeatedly strong US exports and export sales announced last week, mainly to China. Friday’s supply and demand estimates (WASDE) also offered support. Chicago soyabean futures (Jan-21) increased $14.98/t (£12.05/t) from Mon - Fri, to close at $391.56 ($10.65/bsh, £302.65/t) on Friday.

US net export sales of soyabeans for later delivery were recorded at 2.59Mt for the week, of which 1.54Mt were for China. Oilseed markets have been supported by China continuing to purchase and import large volumes of US supply for many weeks now. As well as strong export sales for delivery later this season, the US shipped 1.39Mt of soyabeans to China last week too, which helped to reinforce the bullish sentiment in US soyabean markets.

The global supply and demand estimates report (WASDE) on Friday also lent itself to the bullish sentiment. US soyabean acres were decreased by 283.3Kha to 33.6Mha from last month, leading to subsequent reductions (-1.23Mt) in the production figure. Yields were unchanged from the September report. US soyabean ending stocks were reduced in the face of lowered beginning stocks and a smaller production figure. They are now pegged at 7.9Mt, down from 12.52Mt in the September report.

CONAB released its initial estimates for the Brazilian soyabean harvest last week, forecast at 133.6Mt, up 7.1% on last year. With planting conditions very dry now, the next few months will be a watch point to see if this large figure will be fully realised.

Rapeseed focus

UK delivered oilseed prices

Price rises in soyabean markets lent support to domestic rapeseed prices last week. Rapeseed delivered into Liverpool (Nov) was quoted at £363.00/t on Friday, up £7.00/t on the week. My colleague Anthony published a domestic rapeseed outlook analysis piece on Friday, which is worth a look for future price direction.

One key takeaway from the piece was the degree of rapeseed imports into the EU. As of 28 September, 1.45Mt had been imported into the EU-28 from non-EU origins. This is behind on last year by 481.79Kt. Of the EU total, the UK had imported 97.50Kt. Similar to last year, Ukraine was the leading origin, with 966.58Kt (66.8% of total) imported as of 28 September.

Looking at Ukraine, dry conditions have affected new-crop rapeseed sowings. As of 5 October, 721.1Kha (71%) of the 1,009.50Kha intended area was planted. This is 304Kha behind the area planted by this point last year.



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