Monday, 27 January 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
As Black Sea wheat prices continue to gain, managed money funds have increased their long bullish positions in Chicago wheat, which having provided support, now increases a sell off risk.
In what has been a volatile week for US maize, markets are adjusting to the mixed prospects for US-China trade and have lately lost ground due to global consumption uncertainties.
Domestic barley has continued to track sideways as the large domestic surplus continues to weigh on markets, further increasing the discount to wheat.
Global grain markets
Global grain futures
As Black Sea prices have continued to climb, global wheat markets have received support and Managed Money fund positions in Chicago wheat futures have increased their long, bullish positions. However, with a large degree of support coming from speculative fund positions, this leaves wheat markets increasingly vulnerable to a fast sell off. Doubts over US trade prospects and French logistic delays could now lead to a reversal in market sentiment, especially given the IGC outlook for an increased global wheat area for 2020/21.
Much of the US wheat and maize market will be led now by export data, specifically sales of US agricultural products to China. Yet as concerns have been mounting regarding coronavirus, stocks and commodities have in general lost some ground. Should negative news regarding the spread and virulence of the virus continue then global markets may continue to slide and market sentiment reverse.
Strikes and protests in France have led to logistical difficulties and provided support to Paris milling wheat futures. Yet with ports such as Rouen disrupted by strikes, once logistical difficulties are rectified, the disrupted export pace could weigh on European markets.
UK feed wheat futures (May-20) ended the week down £0.35/t from Friday 17 January to Friday 24 January. After recording gains early in the week, old crop futures markets lost ground following global markets downward.
The new crop contract (Nov-20) recorded a loss of just £0.10/t from Friday to Friday, increasing the market carry from old crop to new. However, with somewhat improved drilling conditions lately, depending upon soil type and location, the degree to which the UK might be in deficit next year may have eased.
Declines to vegetable oil and crude oil markets have pressured rapeseed prices. A strengthened sterling against the euro could add further pressure to domestic markets. Demand for palm oil continues to be limited as disputes between Malaysia and India continue.
Concerns are growing from a lack of purchases from China following the US-China trade agreement. Conversely, the soyabean harvest has begun slowly in Brazil, adding some market support.
Global oilseed markets
Global oilseed futures
Chicago soyabean futures have continued to trend downwards. Chicago soyabean futures (Mar-20) lost $10.20/t last week, to close at $331.42/t on Friday 24 January, the lowest level since 12 December. A lack of any noteworthy purchases of US crops by China has pressured prices since the trade deal agreement. The celebration of Chinese New Year in China has meant any announcements regarding purchases are unlikely to be made. Rising concerns regarding the virus outbreak in China and its potential economic impact have pressured markets to fall in expectation of reduced demand.
In South America, the Brazilian early soyabean harvest is underway and is currently 1.8% completed, a slower pace than last year at 6.1% as of 22 January. As it is early into the harvest season, it is expected this pace will pick up.
Reduced demand from China and India has meant palm oil prices have continued to fall. Exports of Malaysian palm oil products fell 1.3% this month to 25 January from the same period in December.
UK delivered oilseed prices
Following declines in vegetable oil and crude markets, Paris rapeseed futures fell last week. The May-20 contract was down €3.00/t from Friday to Friday, at €402.75/t. This morning, Brent crude oil dropped below the $60/bbl mark for the first time in almost three months amidst the virus outbreak in China.
Last week, UK delivered rapeseed (Erith, Feb-20) gained £1.00/t, quoted at £343.00/t. New crop rapeseed (Delivered Erith, Nov-20) was quoted at £335.00/t. Sterling has gained strength over the course of last week, this could pressure domestic rapeseed prices going forward. Reports of imports from Baltic regions and Canada have meant crushers are likely sufficiently-stocked in the short term.