Market Report - 14 September 2020

Monday, 14 September 2020

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

Grains

Wheat

Maize

Barley

The global outlook looks increasingly comfortable again. Currency is currently key to the UK’s price relationship to world markets and is likely to remain so while the UK’s future trading relationship with the EU is determined.

Although less comfortable than previously forecast, global maize supplies are still expected to exceed demand. Further cuts to global maize production or higher demand could shift the outlook to slightly bullish longer-term.

Large global crops are keeping the pressure on barley prices. Global barley prices can only gain if those for wheat or maize gain due to its need to compete for international animal feed demand in export markets.

Global grain markets

Global grain futures

Global maize prices rose last week ahead of Friday’s USDA report. The USDA cut its forecast of 2020/21 US maize production by 9.6Mt due to dry weather and storm damage in August. As a result, the USDA also cut its forecasts for US and global stocks at the end of 2020/21.

Large sales of US maize to China have supported prices in recent weeks. However, in the latest USDA forecasts stronger export demand was more than offset by a drop in US domestic maize usage (including for ethanol production). The impact of the coronavirus pandemic on US maize demand and so prices is being overshadowed for now but it’s still area that needs monitoring.

In contrast, Chicago wheat futures prices were lower Friday-Friday as global wheat supplies look increasingly comfortable and the US dollar index regained some strength.

SovEcon added 0.7Mt to its forecast of the Russian wheat crop after better than expected results in Siberia. Meanwhile, Australia’s government raised its estimates of 2020/21 wheat and barley production following recent rainfall.

A La Niña weather event is confirmed to be underway. This supports crop potential in Australia but poses a threat to Argentinian wheat crops. However, in the latest USDA forecasts, increased production in Australia (plus Canada) more than offset a cut to the Argentinian crop, resulting in higher global wheat stocks.

UK focus

Delivered cereals

Sharp falls in the value of sterling pushed up UK grain prices last week. Sterling fell 3.7% against both the US dollar and the euro, Friday-to-Friday. As key deadlines loom in the UK’s trade deal negotiations with the EU, the UK’s credit rating was downgraded by rating agency Fitch.

The GB harvest is now into the latter stages, with increasing demonstration of how the challenging season has hit yields and quality. First cereal quality results (CQS) of 2020, which includes samples up to mid-August, also highlight the effect of a difficult growing season. Less than a third of samples so far meet nabim Group 1 milling specifications, compared to 55% in the first CQS results last year. Against this backdrop, it’s unsurprising that the UK imported some 149Kt of wheat in July, 62% more than in July 2019. Canada was the main origin (72Kt).

Meanwhile, for barley the preliminary CQS results highlight higher nitrogen levels for both winter and spring barley versus the initial release last year.

Where next for UK wheat?

This year has been very challenging for crops and farmers but what could the future hold? Last week we focused on the outlook for UK wheat in the months and year ahead:

  • Lower yields in 2020 mean that costs per tonne will be higher for spring barley, winter wheat and oilseed rape (OSR) despite some lower input costs in the last 12 months.
  • There’s potential for the UK wheat area to rebound for harvest 2021. Based on what happened after previous years where wet weather limited cropping, the ‘rebound’ may only be to previous (2015-2019) levels but there’s a lot of factors that could influence that.
  • Wheat was again top of the crops in our 2021 gross margin estimates, further supporting the potential for a rebound in the wheat area for harvest 2021. There’s still a strong economic incentive to plant oilseed rape but we know this has to be balanced against the agronomic challenges.
  • Finally, we looked at what potential changes in cropping patterns for wheat, barley and rapeseed in 2021/22 could mean for strategies to market these crops.


Oilseeds

Oilseed Rape

Soyabeans

Although there is lower oilseed rape stock-to-use as we start 2020/21, there have been increases in forecast production for Australia and Canada. There are still questions over energy demand due to the coronavirus, and any future gains will likely depend on currency and other oilseeds.

Prices were supported as the USDA revised down the size of the US crop. Successive Chinese purchases have also supported the market. Heading into 2020/21 the soya market is set to be well-supplied globally.

Global oilseed markets

Global oilseed futures

A week of support for oilseed markets last week, in the week ending 3 September US net sales of soyabeans reached 1.59Mt to China and a further 0.93Mt to unkown origins for the new marketing year.. US soyabeans futures (Nov-20) closed Friday at $365.93/t, gaining $10.29/t across the week.

The latest USDA supply and demand estimates were released on Friday evening. The report showed lower US soyabean production, down from 120.4Mt to 117.4Mt, for the 2020/21 marketing year. Further to that, US soyabean ending stocks were reduced by 4Mt to stand at 12.5Mt.

The reduction in US production and stocks was partially offset by increased opening stocks in South America and an increased Brazilian production forecast (+2Mt). Despite large successive Chinese purchases of US soyabeans in recent months, the US soyabean export forecast for 2020/21 remains unchanged month-on-month at 57.8Mt.

Support for soyabeans has also been encapsulated in vegetable oil markets as Chicago soy oil futures (Dec-20) closed on Friday at $743.17/t, gaining $18.08/t, across the week.

Malaysian palm oil markets weakened last week. However, today Palm oil is tracking the strength in other vegetable oil markets, such as soy oil and sunflower oil.

Brent crude oil (nearby) closed Friday at $39.83/barrel, reducing 6.6% across the week. A tropical storm in the Gulf of Mexico forced some rigs to close, but wider concerns over excess supply whilst demand has been falling has pressured the oil market.

Rapeseed focus

UK delivered oilseed prices

Paris rapeseed futures (Nov-20) closed Friday at €382.25/t, down €2.25/t across the week. The contract recovered on Friday limiting losses, as rapeseed rallied with soya markets ahead of the WASDE report.

UK prices encapsulated support as delivered rapeseed (Liverpool, Nov-20) was quoted at £357.50/t, up £8.50/t from 4 September. This was because sterling weakened across the week against the euro to close on Friday at £1 = €1.0798.

ICE canola futures (Nov-20) climbed higher on Friday strengthening with soyabean markets and some worries about frost in Canada, although damage is reported to be minimal as crops reach maturity. ICE canola futures closed Friday at CA$517.40, gaining CA$13.70/t across the week.



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