Tuesday, 26 May 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
While the longer term view remains slightly bearish, dry conditions in the Black Sea and EU are supporting new crop markets. Conditions look set to remain dry this week.
While there is a fundamental lack of demand for maize from the ethanol sector and large production expectations for the US and South America, much of this may now be priced in.
As previously, global supply and demand remains heavy, pressuring prices into maintaining a strong discount to wheat.
Global grain markets
Global grain futures
By and large, global wheat markets were supported last week. The continuation of new crop weather concerns helped Chicago wheat futures (Dec-20) gain 1.7% Friday-Friday, although movement throughout the week varied.
Early last week we had the release of the EU crop monitoring (MARS) report, which highlighted the impact of prolonged winter rainfall and subsequent spring rain deficit on developing crops. Rain deficits from 1 April to 15 May were observed across Western Europe, leading the commission to reduce its soft wheat yield forecast for 2020 by 2.6% on the April report.
Elsewhere the USDA released its latest crop condition report. Maize planting has continued to accelerate in positive conditions, while spring wheat planting has been held back by cold weather in the Northern US states.
One of the key watch areas at present is the ongoing weather patterns in South Western Russia. The region had experienced some significant dryness through the spring, leading the Russian Agriculture Ministry and IKAR (Russian Institute for Agricultural Market Studies) to reduce their estimates of 2020/21 grain production. The Russian Agriculture Ministry shaved 5.3Mt from its total grain production forecast, taking forecast grain production 1.2Mt below last season, at 120Mt.
For maize, there continues to be a fundamental lack of support. Big crops are still anticipated globally, while demand particularly for ethanol production is limited at best.
UK wheat prices echoed the global sentiment, but movements in new crop wheat futures were amplified by the weakness of sterling. Nov-20 feed wheat futures tested recent highs, closing on Thursday at £170.45/t, before falling back marginally.
While global weather concerns are key to overall market direction, the latest UK crop condition report was released on Friday. The report highlights the fall in winter crop conditions, with 26% of UK winter wheat rated as “very poor” or “poor” compared with the 5% of winter wheat falling in these bands last year.
Delivered cereal prices followed the movements in futures last week, with no significant shifts in basis. The milling wheat delivered basis into both the Midlands and the North West remains historically strong through May, relative to average levels. Midlands milling wheat basis (May Delivered against May futures) has averaged £27.55/t versus a five-year average of £21.61/t. Concerns over new crop availability are partially driving this.
Dry weather across Europe, combined with the remobilisation of the global economy and subsequent support for crude oil, could provide a lift for rapeseed. However, possible gains could be capped by a plentiful supply of soyabeans.
Ample global supplies and dry planting conditions in the US Upper Midwest. A lot of the bearish outlook has been factored in, but political tension could further cap gains if Chinese purchases of US soyabean subdue.
Global oilseed markets
Global oilseed futures
US soyabean futures (Jul-20) closed on Friday at $306.17/t, down by $1.93/t on the week before.
On Friday this contract traded at a month-low of $304.42/t. Conditions in the US Midwest were ideal for soyabean crop development, with temperatures at relatively normal levels for the time of year.
Further to that, political tensions between with US and China have provided little support for soyabeans. There is speculation as to whether China will fulfil its Phase 1 trade commitments. April trade data has shown that US soyabean imports into China for April are down 62% year-on-year, as China increases imports from Brazil. However, this can be due to seasonality also.
Brent crude oil (nearby) closed Friday at $35.13/barrel, gaining $2.63/barrel on the week before. There has been a steady gain for crude oil as the global economy attempts to start again and oil producer’s commitment to supply cuts. This will inherently offer support to the vegetable oil complex.
Malaysian palm oil futures (Jul-20) gained 4.48% from Friday-Friday. Output from plantations in Malaysia are still facing disruption and supply issues from the coronavirus.
UK delivered oilseed prices
Paris rapeseed futures (Aug-20) closed on Friday at €375.50/t, gaining €5.50/t on the Friday before. There were gains domestically, with the UK delivered prices (into Erith) quoted at £328.00/t for harvest delivery, up £7.50/t on the previous week.
Gains were slightly higher on the domestic market as sterling weakened across the week by 0.29%, to close Friday, at £1 = €1.1158.
Dry spring weather in Eastern Europe has led to ProAgro revising the Ukrainian 2020 rapeseed harvest down by 11.6%. This should support continental pricing, with the EU likely to need to increase their year-on-year imports of rapeseed, and the Ukraine a large provider.