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Potential pressure on global wheat markets as US winter wheat fares well: Grain Market Daily

Tuesday, 7 April 2020

Market Commentary

  • UK wheat futures (May-20) closed yesterday at £157.35/t, up from £1.85/t on Friday’s close. The November contracted also gained to close at £166.90/t, up £1.90/t from Friday’s close. As spring conditions are ideal for drilling there is still a large incentivising carry of £9.55/t between the two contracts. A stark contrast from this time last year when the Nov-19 contract was at a £17.00/t discount to May-19, as a large wheat crop was anticipated.
  • US soyabean futures (May-20) closed yesterday at $314.31/t, up $0.46/t on Friday’s close. While US maize futures (May-20) were pressured further to close at $129.04/t, down $1.18/t on Friday’s close. The price ratio between the US soyabean (Nov-20) and maize (Dec-20) as of yesterday’s close is at 2.32x, this spread would have given incentive to plant soyabeans over maize.
  • Paris rapeseed futures (May-20) closed yesterday at €368.00/t, up €4.25/t on Friday’s close. There was support towards the end of last week from crude oil gaining, as talks continue with political leaders on managing energy outputs.

Anthony Speight

Analyst

Potential pressure on global wheat markets as US winter wheat fares well

Yesterday evening the first USDA crop progress report of the 2020/21 marketing year was released.

Although the total wheat area planted is estimated at 18.1Mha, the smallest since records began in 1919. Applying 5-year average yields to both sown winter and spring wheat, the US are still expecting a crop between 46.3 – 51.0Mt.

As cereal crops in the northern hemisphere start to mature, it is crucial to analyse the conditions of these crops as we progress to harvest. Despite a reduced winter wheat area in the US, they will still have a large exportable surplus. For more information on US prospective plantings, be sure to read Peter’s article from last week.

Winter wheat conditions all-in-all are generally fine with 91% of the crop rated ‘Fair’ (29%, down from 31% last year), ‘Good’ (53%, up from 48% last year) or ‘Excellent’ (9%, down from 12% last year).

One area that will be watched closely is the state of Kansas, where 51% is rated ‘Very poor’ (3%), ‘Poor’ (10%) or ‘Fair’ (38%). Owing to dry conditions so far this season, this state accounts for 22.1% of total winter wheat area.

Although the US influence on the global wheat market has reduced, good climatic conditions and increased new crop expectations will pressure global markets, which will inherently pressure the UK market.

It’s predicted that a split temperature pattern is likely to develop across the US in April, with cooler temperatures in the north and warming of the south.

Heavy rain is anticipated with wet conditions in the upper Midwest, while benefitting the winter wheat, if heavy precipitation does materialise this could mean a delay in spring plantings of wheat, maize and soyabeans.

Within the 48 states on average 66% of topsoil moisture is rated ‘Adequate’ up from 61% last year. Subsoil moisture conditions are at 67% ‘Adequate’ up from 64% last year.

These are the first crop condition scores and there are a lot of things that can change between now and harvest. However, this gives early indication of how crops are faring.


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