Monday, 19 August 2019
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Chicago wheat futures fell sharply last week but will need to fall further to gain export competitiveness. UK feed wheat will remain subdued amid harvest pressure and a strengthening pound.
The USDA WASDE took the market by surprise, with a larger than expected US production forecast. Prices fell back to pre-planting levels, but are reliant on the later planted, more at risk crop.
UK feed barley continues to be priced competitively, finding export markets. With a recently strengthening pound and ongoing harvest pressure, domestic barley is likely to remain subdued.
Global grain markets
Global grain futures
The much awaited USDA WASDE and revisions to the maize planted area took markets by surprise. While the US maize harvested area was downgraded, the area remains above the previous season. Additionally, upward revisions to the yield forecast actually increased the production forecast from the previous month.
The revised US maize production outlook removed the previous support from grain markets, with both wheat and maize futures falling.
However, longer-term, the development of the late planted US maize crop is behind average, and with a greater proportion of the crop planted later, there is an increased risk for wider frost damage.
In wheat markets, after a somewhat notable absence from dominating GASC tenders (The Egyptian state buyer), Russian wheat prices have fallen, and gained the majority of sales in the latest round of tenders. With strong competition across the Black Sea, and the US currently priced out, wheat markets will remain bearish.
UK feed wheat futures continue to be driven by the volatility of currency and harvest pressure. The pound strengthened 2% over the week, adding further pressure to domestic prices, leaving £1=€1.0955 on Friday 16.
Additionally, larger ex-farm sales of harvested wheat have added further pressure as yields have been above average and the potential size of the crop has grown.
By August 13, 27% of the wheat crop was harvested, with farmers reporting above average yields in most situations in the South and East of England (Read the full report here).
With a larger crop expected, the necessity to export feed wheat has grown.
European production figures are reduced further in the USDA’s WASDE, on the back of low French yields. Oilworld also raised EU import requirements, pointing to lower than expected production (www.oilworld.biz).
Regardless of a reduction in US production estimates, global supply of soyabeans remains heavy. With no progress in US-China trade negotiations, US stocks will continue to weigh on the market.
Global oilseed markets
Global oilseed futures
Global oilseed markets have taken opposite stances this week. Paris rapeseed futures (Nov-19) gained week-on-week whereas Chicago soyabean futures (Nov-19) slid and have continued to drop further this morning. Tuesday saw an uptick in Chicago soyabean futures in response to Monday’s WASDE report.
The WASDE report forecast the US soyabean harvest area at 30.7Mha, over 1.5Mha below the average trade estimates in a Reuters poll. Reduced harvest area resulted in lower production of 100.16Mt for 2019/20, circa 8Mt below trade expectation.
Following the WASDE release, Chicago soyabeans climbed on Tuesday but have since come back down. Although production is predicted lower, pressure still lingers from the US-China trade dispute continually weighing on the market.
US managed money funds reduced their net-short positions in Chicago soyabean futures marginally in week ending 13 August, on the back of the WASDE release. Although favourable US weather last week may have slowed the pace.
UK delivered oilseed prices
Since Monday, Paris rapeseed futures (Nov-19) have continually climbed to close Friday at €380.00/t, the highest since November 2017.
However, the week-on-week jump of €5.75/t, did not carry through to UK physical prices. Oilseed rape delivered to Erith in November dropped £0.50/t week-on-week, at £349.50/t.
The previous five weeks of gains was primarily driven by weakening sterling which strengthened last week counteracting rising European futures.
Friday’s harvest report stated UK OSR harvest is 86% complete. Although yields have been variable they are currently estimated around the five year average of 3.5t/ha. Oil content has also differed somewhat but the average is 44%.