Monday, 18 May 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Global supplies look set to remain heavy into the new season. Concerns about European yields are providing some support for now, but this is capped by the heaviness of the global outlook.
Increasing confidence in South American crops and projections for heavy supplies next season keep global prices under pressure. For the UK, this raises the risk of higher imports and caps domestic prices.
Large domestic, global and European crops are projected against a backdrop of lower malting demand. Concerns over crop conditions as the forecast turns dry again are preventing the situation from being even more bearish.
Global grain markets
Global grain futures
Global grain futures declined last week after the USDA’s first forecasts of supply and demand for 2020/21 showed larger crops and rising stocks for both wheat and maize. Barley stocks are also expected to rise, despite a slightly smaller crop. This outlook could mean further price falls, unless we see substantial crop problems emerge.
Despite earlier worries about dry weather, estimates of South American 2019/20 maize crops were increased last week. This adds additional supplies to the market and removes a possible area of support for prices. Conab added 0.5Mt to its forecast of the Brazilian maize harvest, while the Rosario Grain Exchange added 1.2Mt to its estimate of the Argentinian crop with harvesting 45% complete.
European wheat prices received a boost late in the week after Stratégie Grains reduced its forecast of old-crop EU-28 (including the UK) wheat stocks by 1.1Mt. They see increased exports more than outweighing further demand losses due to the coronavirus on ethanol, and to a lesser extent starch and milling. Stratégie Grains also cut its forecast of 2020 wheat production by 2.1Mt due to recent adverse weather. In contrast, a heavier EU barley supply situation is forecast with 2020 production up by 0.3Mt, met by reduced malting demand as beer sales drop around Europe.
The EU’s crop monitoring report (out later today) will give more insight into yield potential.
UK futures ended the week higher in contrast to global markets. Prices fell through the week following the global pattern, but gained at the end of the week as sterling dropped sharply against both the US dollar and euro. The pound fell to its lowest level since late-March against both the dollar (£1 = $1.2104) and euro (£ = €1.1190).
Domestic markets were relatively quiet last week and spot delivered price changes (Thu-Thu) depended on local demand levels. The May futures contract is now into its final days and finishes trading on Friday 22 May.
Weather conditions have also been variable across the UK and our next crop condition report will be out on Friday (22 May) to help give a nationwide picture.
What’s ahead for UK barley in 2020?
Last week we focused on what’s ahead for barley. It’s going to be a difficult year and we’re likely to see feed barley prices at large discounts to wheat prices.
- The 2020 crop could be in excess of 8.3Mt, based on the latest area information and crop conditions (as at end-March).
- Malting barley demand is being reduced by measures to combat the coronavirus. For each week the UK hospitality sector alone remains closed, it could mean in the region of 5Kt of lost demand for malting barley. There will also be impacts from temporary distillery closures (for safety reasons) and a slow-down in malt exports, but it’s difficult to quantify these yet.
- We will need to export and opportunities exist in North Africa as dry weather has reduced local yields. However, the obstacles include drying grain to lower moisture levels than is required in the UK - we look at the costs involved here.
While the global coronavirus-led sentiment around oilseeds remains fundamentally bearish, the drier weather trends in the EU may offer some support.
The general tightening of supply and demand last week offered support; sentiment going forward is likely to be driven by trade relationships once more.
Global oilseed markets
Global oilseed futures
Last week was mixed for oilseed price direction. Chicago soyabeans (Nov-20) began the week moving lower, driven by concerns over US-China trade. However, prices recovered later in the week driven by a number of factors, including a tighter USDA supply and demand outlook, reduced South American production forecasts and positive US export sales.
Last Tuesday’s USDA supply and demand estimates were somewhat bullish for soyabeans. Soyabean stocks are forecast to decline year-on-year in 2020/21, despite a large increase in forecast production. Obviously, there is a high degree of uncertainty in these initial forecasts, and an inherent sense of scepticism, particularly given the ongoing trade tensions and coronavirus driven demand concerns. Despite the drop in stocks, global stocks-to-use (excluding China) remains relatively comfortable at 28.5%.
There was also a sense of tightening for soyabean production in South America. The latest production forecasts from Conab show a mild fall in output in Brazil, down 1.73Mt from last month to 120.3Mt. While the cut offers short-term support, Brazilian production is still expected to exceed last year’s level by more than 5Mt.
This week, sentiment for oilseeds, particularly soyabeans, is likely to be driven by today’s USDA crop condition scores and the ongoing trade situation between China and the US.
UK delivered oilseed prices
New-crop Paris oilseed rape futures (Nov-20) were marginally lower in euro terms Friday-Friday last week, falling €2.00/t to close at €373.25/t. In sterling terms, prices were supported with the value of the pound relative to the euro falling by 2.25%, to close on Friday at £1=€1.1190.
The economic downturn that is accompanying the coronavirus pandemic is driving the prevailing sentiment for sterling. UK delivered oilseed rape prices (spot, Erith) gained £2.50/t last week, quoted at £322.50/t.
Looking ahead, weather is likely to be a key driver of European and subsequently UK oilseed rape markets. Conditions in the key growing regions of Western Europe and Eastern Germany and Poland have been very dry of late, which may impact yield assessments when the EU release their latest crop monitoring report later today.