Monday, 28 October 2019
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
Downward revisions to Argentinian and Australian production in 2019/20 have led to a tightening of global supply and demand. US Managed Money funds have entered a net long position.
Prices have drifted with a lack of fresh news to support markets. However until the US and South American crop size is fully known, there is likely to remain a greater upside potential.
The requirement to export significant volumes will likely continue to keep domestic prices under pressure. The flexible Brexit extension unlikely to provide sufficient confidence for significant export trade.
Global grain markets
Global grain futures
US wheat futures (Dec-19) have backed off from their recent high on Friday 18 October. Closing at $190.24/t on Friday 25 October, down $5.33/t over the week. Weekly net export sales of US wheat were the lowest this season at 262.4Kt for 10-17 Oct, below the required pace to meet the USDA 25.86Mt forecast.
Although sales were minimal, global cuts in production have continued to provide underlying support and a more bullish tone to markets. Reflecting this view, US Managed Money funds have entered a net long position.
In the southern hemisphere, dryness concerns have continued to lead to downgraded production forecasts. The IGC removed 2.1Mt from their Australian wheat production estimate. However, at 17Mt, the IGC forecast is still above that of Rabobank, and the global supply pictures could well continue to tighten.
Cuts were also made to Argentinian grain production estimates. Wheat production was cut by 0.9Mt and 3Mt removed from the maize IGC production forecast.
The continued Brexit uncertainty will likely continue to keep domestic prices pressured, especially that of barley. The uncertainty has pressured the nearby market and the carry from November-19 feed wheat futures to May-20 has widened throughout October.
The large export requirement to avoid a build-up in stocks will mandate a continued fast monthly export pace. However, a Brexit delay with possible flexible extension may not provide adequate trade assurance for significant export sales.
Delivered feed barley quotes for Avonrange, East Anglia, South Humber and Southampton are all pricing at export competitive levels of between £125.00/t and £126.00/t. This minimal spread of prices highlights a well supplied domestic market.
The outlook for EU rapeseed remains tight and currency will play a key factor in domestic pricing. Questions remain over the availability of imported supplies post-Christmas.
Dry weather across the US pressured markets as harvest continues. US-China trade talks are progressing positively and a 10Mt tariff waiver for US soyabean exports was announced.
Global oilseed markets
Global oilseed futures
Chicago soyabean futures (Nov-19) dipped to $338.10/t by Friday’s close, down $5.05/t on the week, as dry weather allowed harvest to progress across much of the US. Longer term the outlook remains supportive with a significant drawdown in ending stocks expected.
Slow planting in Brazil has increased the need for good weather later in the growing season. While unlikely to impact yields at this stage, planting in both Parana and Mato Grosso do Sol has fallen significantly behind average (read more here).
In Argentina there are worries that the new president, who will enter office in December, might increase export taxes on wheat and maize. This is likely to incentivise an area shift towards soyabeans which are seen as a “safe crop” and a reduction in the maize area.
UK delivered oilseed prices
The outlook for rapeseed continues to be tight and questions remain over how much the EU will be able to import post-Christmas, as black sea supplies dwindle. Australian canola production estimates keep falling due to the drought, with Rabobank estimating production at 1.83Mt last week, 45% below the five year average and below the current USDA estimate of 2.2Mt.
Snowfall in Alberta over the weekend is likely to have stifled progress made in the canola harvest, with 40% still in the ground at 22 October. Meanwhile, harvest in Saskatchewan and Manitoba is 79% and 82% complete respectively. For crops left in the field there is a risk of snow hampering quality and flattening crops.
Domestically trade is limited with sellers occupied with fieldwork and buyers running off imported supplies.