Mid-week market update: Grain market daily

Wednesday, 27 July 2022

Market commentary

  • UK feed wheat futures (Nov-22) rose yesterday to settle at £266.75/t, up £9.45/t from Monday’s close. The Nov-23 and Nov-24 contracts both gained £4.00/t yesterday, closing at £233.00/t and £230.65/t respectively.
  • UK wheat tracked EU price rises, with strong demand following global tenders. Jordan has issued a new wheat tender for 120Kt today, following Pakistan purchasing 300Kt of French wheat last week. This continues the trend of strong EU exports in July (Refinitiv).
  • Global wheat prices remain supported from dry and hot forecasts globally, and uncertainty over Ukrainian grain exports following another Russian missile attack on a Ukrainian port (Refinitiv). More on market drivers below.
  • Paris rapeseed futures rose across the board yesterday. The Nov-22 contract gained €11.75/t to close at €643.50/t. Support came from Ukrainian export uncertainty, as well as gains in the wider oilseed complex including Malaysian palm oil, and US soyabeans (considering warm and dry US weather).
  • UK gas prices have been rising in recent days, in light of the Russia to Germany Nord Stream gas pipeline slowing down. The pipeline is reportedly running around 40% of normal capacity.

Mid-week market update

Yesterday, we saw some renewed support across UK feed wheat contracts. These gains followed the movements in wider global grain markets.

Below I run through some key market drivers this week and watchpoints going forward.

Ukrainian port bombing continues

There is still some uncertainty around how quickly grain exports will resume from Ukraine. After a bombing at the Odessa port on Saturday, Russian missiles have struck infrastructure at a port in the southern Mykolaiv region (around 2 hours’ drive from Odessa).

Questions around whether insurance companies will insure vessels leaving the mined waters and strikes on ports are also adding to uncertainty. However, Turkish officials have said the first ship is likely to depart in the next few days. Something to follow closely.

Dry weather worries

Dry weather continues, not just in the UK, but globally.

In the US, the market was surprised on Monday when the USDA reduced its good/excellent crop condition scores week-on-week more than expected, for spring wheat (down 3 percentage points (pp)), maize (down 3pp) and soyabeans (down 2pp). The cut in crop conditions was driven by hot/dry conditions across the US Midwest and Plains. This week, milder conditions are expected across the Midwest, although August is set to warm-up again.

In Europe, hot weather has resulted in a trim to forecasted maize yields, as discussed yesterday.

Strong EU wheat demand

Paris milling wheat futures (Dec-22) gained 4% (€12.00/t) yesterday following strong demand. As part of a 300Kt Pakistan wheat tender last week, traders reported yesterday that French wheat made up to 7 shipments of this. This follows large Chinese purchases of Australian and some French wheat last week.

Refinitiv report that recent purchases bring French wheat exports to over 1Mt this month.

UK – what’s happening closer to home?

Economic concerns weighing on currencies

Sterling could feel pressure from the worsening economic climate, UK retail sales continuing to slump, and political uncertainty.

However, Europe are seeing inflationary pressures and gas supply concerns weakening the euro. Yesterday, sterling gained 1% to close at £1 = €1.189. Could this mean cheaper imports?

National Drought Group convenes

Yesterday, the National Drought Group convened. Most of England has been moved to ‘Prolonged Dry Weather’ status, meaning the Environment Agency are now taking precautionary actions to mitigate impacts. Nowhere is yet to be considered in ‘drought’ and most water companies are maintaining good reservoir storage for summer demand.

However, with lower-than-normal rainfall this year to date, and dry weeks ahead, the Environment Agency is calling on everyone to manage water use. Something to watch as harvest continues and ahead of drilling commencing.

For more information on the current situation, please follow this link to the Gov website.

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