Monday, 16 March 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
The global fundamental picture is well supplied, although dryness in the Black Sea region will be monitored closely. The domestic market continues to move at, or close to, import parity.
Fundamentals continue to point to an abundance of maize, with large crops expected in South America. As we near April, the corn-soyabean planting picture in the US will be key.
Domestic and global barley supplies appear to be abundant. Barley is maintaining a healthy discount to wheat in order to remain competitive for both feed and export.
Global grain markets
Global grain futures
Global grain markets continue to be affected by the developments and continued uncertainty surrounding the coronavirus pandemic. Global stock markets lost considerable ground last week, leading governments and central banks to initiate financial stimulus packages.
The US Federal Reserve Bank has cut US interest rates, combined with a large package of quantitative easing. In response, the US dollar has weakened and could well weaken further as markets open around the world. The weaker dollar supports the value of US dollar-based commodities.
While market movements have primarily been led by sentiment and financial drivers, there are still some fundamental drivers worth noting.
On Thursday Strategie Grains released their latest EU supply and demand figures, highlighting a 1.9Mt decline in forecast soft wheat production, to 136.7Mt (down 6.6% year-on-year), including;
- 1.00Mt cut to UK production (10.78Mt, down 32.9% y-o-y),
- 340K, cut to French production (33.4Mt, down 15.5% y-o-y),
- 230Kt cut to German production (23.3Mt, up 1.9% y-o-y).
In the Black Sea region, low soil moisture and minimal rainfall during spring wheat planting could become cause for concern going forward. Similarly, dryness worries are noted in South America for maize in Argentina (harvesting) and Brazil (planting Safrinha crop).
Sterling continues to be very weak against the euro, falling to its lowest value since September this morning, at £1=€1.09 (read more here). The fall in the value of sterling helped UK feed wheat futures (May-20) to end the week just £0.05/t down, at £149.50/t, despite midweek volatility. By comparison, Paris milling wheat futures (May-20) ended the week €4.25/t lower, at €177.50/t.
Concerns over new crop availability continue to drive North West milling premiums, which were quoted at £38.55/t over futures last Thursday for May delivery. This was up from £30.50 over futures on 9 January
Despite a tight new crop production outlook, the market picture for rapeseed continues to be bearish. Volatility in Brent crude oil markets continues to set the direction for rapeseed prices.
Brazil’s soyabean harvest is almost 63% complete, above the historic average. Plentiful supplies from the South American region will continue to pressure prices for the foreseeable future.
Global oilseed markets
Global oilseed futures
On Monday all commodities declined alongside energy and equity markets, as OPEC were unable to strike a deal with Russia on oil production outputs. The nearby Brent crude oil futures contract traded at its lowest since 2016. The contract closed on Friday at $33.85/barrel, down $11.33/barrel on the Friday before.
Chicago soyabean futures (May-20) closed on Friday at $311.86/t, down $15.62/t on the Friday before. A bleak US export schedule and ideal harvesting conditions in Brazil, combined with Covid-19, has meant technical selling has ensued.
Furthermore, nearby Chicago soyaoil futures closed on Friday at $580.92/t, down $52.91/t on the Friday before.
Despite the previous weekly gain, nearby Malaysian palm oil futures were down 6% Friday-to-Friday. The Malaysian government plans to decrease its export duty for crude palm oil to 5% in April, down from 6% in March. This will put pressure on exporting competitor Indonesia.
As the Malaysian ringgit weakens against the dollar, palm oil becomes a more attractive oil for export markets. However, as anxieties over Covid-19 exacerbate and pressures on crude oil markets continue, the demand for palm oil as a blend in biodiesel reduces. Pressures on crude oil reduces the demand for vegetable oil blends in fuels.
UK delivered oilseed prices
Paris rapeseed futures (May-20) closed on Friday at €352.50/t, down €25.25/t on the week before. There is a degree of pressure at the moment around rapeseed as futures contracts react to the pressure on crude oil markets.
Last weeks delivered rapeseed price (Erith, May-20) reduced by £17.00, to be quoted at £318.50/t. Sterling weakened 4.38% against the Euro Friday-to-Friday to close at £1 = €1.105. The weakening of sterling has helped shelter domestic rapeseed prices from some of the losses seen in EU markets.