Monday, 22 June 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Production and weather issues in the Northern Hemisphere are seemingly priced in as harvests start. As such, wheat looks set to continue declines with 2020/21 stocks to increase.
The large net-short position held by managed money funds has reduced somewhat, however, expectation of large supplies remain and ethanol production has slowed.
Large expectations of global crops remain as harvest kicks off globally. Domestically supplies may be tighter than originally anticipated which may narrow the discount to wheat.
Global grain markets
Global grain futures
Global new crop wheat futures were in retreat last week, falling on US harvest pressure and a basic lack of bullish drivers. New crop maize values continued to float at their current support level, before making small gains on Friday.
It would appear that tightness in EU and Ukraine wheat production is now largely priced in with markets once more reacting to the expectation of improved wheat stocks in 2020/21. Areas of the Black Sea, EU and US all continue to look dry through the next fortnight, but as we move closer to harvest the significance of the drier weather likely reduces for winter cereals. Spring cereals remain more exposed to weather risks, particularly in Russia.
On Friday, the latest soft wheat crop condition scores for France remained unchanged for the third week in a row. Meanwhile, Russian agriculture consultancy IKAR has today increased its estimate of 2020/21 production, up 1.5Mt, at 79.5Mt.
For corn, recent support may waiver slightly. US ethanol production, while increased week-on-week, was only up four thousand barrels, the smallest weekly increase since production began growing again in the first week of May. Despite this, short positions in Chicago corn futures held by managed money funds have reduced slightly from recent records.
UK grain prices generally followed global trends last week. However, weakness in sterling in response to the Bank of England’s decision to increase UK asset purchases did offer some support later in the week.
Delivered premiums for new crop milling wheat (Nov-20, North West) remain strong, quoted at £42.50/t, on Thursday. The market remains thin and this will likely keep premiums elevated in the short term. Feed wheat delivered East Anglia (November) was quoted on Thursday at £168.00/t, a £3.50/t, premium over Nov-20 futures.
As with milling wheat, feed wheat delivered premiums remain firm in a thin market, the five-year average premium of East Anglia delivered feed wheat over November futures for this point in June is £0.43/t.
Rapeseed markets have benefitted from a wider rise in oilseed markets. The temporary closure of the Erith crushing plant provides support. Increased rainfall over much of the UK will benefit rapeseed crops.
Global oilseed markets
Global oilseed futures
US soyabean futures (Nov-20) closed on Friday at $323. 62/t, gaining $0.37/t over the week. The contract fell in the week following the release of US soyabean crush figures that were below market expectations.
US Soyabean futures recovered on Friday following continued optimism for Chinese purchases of US origin. Spot prices sit cheaper than Brazilian supplies and so remain favourable for Chinese purchasers. This US export movement is a main bullish element in a relatively bearish oilseed market.
Global palm oil usage is expected to fall by 3% this season as a result of the coronavirus pandemic, marking the first seasonal decline on record. The pandemic has had a relatively small effect on Malaysian production so far, with closing Malaysian palm oil stocks now forecast to rise 14.4% in 2020. This will act as a downwards price pressure over the longer term.
In the short term, palm oil markets have seen support from a bumper June export campaign. Malaysian exports of palm oil products increased by up to 57% between 1 – 20 June.
UK delivered oilseed prices
Paris rapeseed futures (Nov-20) closed on Friday at €382.75/t, a gain of €2.25/t from the previous Friday. Markets have ticked higher following the gains in palm oil and soyabean markets. A weakening sterling has also enabled domestic prices to track closer to EU equivalents.
The temporary closure of the Erith rapeseed crushing plant following an explosion at the site on Friday gave further support. The full extent of the damage and duration of the site closure is unclear at this point.
The UK delivered rapeseed price for harvest delivery (Liverpool) increased to £338.00/t, gaining £6.00/t on the week.