The second of our weekly market views from Europe relates how weather concerns are supporting markets across the globe as dryness hits US spring wheat crops.
A barley surplus is anticipated in the UK, despite expectations of low yields. The French wheat harvest gathers pace and harvests have started in the Black Sea.
Was the bearish July Wasde
The major event of the week has undoubtedly been Wednesday
July US Department of Agriculture Wasde report, with the trade expecting the US
agency to cut both 2016-17 and 2017-18 global wheat ending stocks to 255.4m
tonnes and 257.4m tonnes respectively.
Operators were clearly disappointed with the forecasts 1%
[2.7m tonnes] and nearly 1.3% [3.2m tonnes] above analysts' estimates resulting
in a correction lower in global wheat prices.
However, it is interesting to note that after an increase in
the previous report, the 2017-18 global wheat production estimate is back down
to the initial forecast of 737.83m tonnes released in May versus 739.53m tonnes
last month, while the production across the top eight exporting countries could
drop 40mt year-on-year.
With ongoing weather concerns in key producing/exporting
regions - drought across the southern Canadian Prairies and the northern part
of the US Plains which could lead to the lowest domestic spring wheat crop in
15 years, lower-than-anticipated EU/Ukrainian output and a bad start to the
Aussie season - grain prices could well be supported medium term after the
'seasonal' but limited harvest pressure.
Surprisingly - or not - based on the deterioration in the US
crop condition due to the recent dry and hot conditions in the Midwest, both
the 2017-18 US corn/soybean yield forecasts were left unchanged while the
stocks of US corn jumped nearly 5.5m tonnes on last month and those of soybeans
were lowered by less than 1m tonnes.
Benjamin Bodart, CRM AgriCommodities
Market gears up for
The UK market is gearing itself for harvest to commence.
Traders and farmers alike will be keen to discover how the
crop has fared, whether the heat adversely affected quality and whether recent
rains hindered or improved yield potential.
The increase in wheat imports and the virtual shut-down of
exports over the final quarter of the 2016-17 marketing year will ensure that
carry-in stocks are larger than previously projected, providing some supply
security over the early harvest period.
The UK market continues to be driven by firm global markets,
all linked to production concerns in North America.
While these are supportive to the future markets, there is
no correlation between US quality wheat and UK feed wheat, meaning growers
should take advantage of the current market forces to at least some extent in
their marketing strategy.
Assisting the rise in UK values has been a recent drop in
sterling, triggered by less bullish talk from the Bank of England over interest
rates, and a few choice words from Boris Johnson, UK foreign secretary, over
the UK's divorce bill in relationship to Brexit.
In summary, growers have benefited from global events and a
Longer-term market prospects will depend on a sensible UK-EU
trade deal and its impact upon the 2018-19 marketing year. However, crop 2018
prices certainly look attractive as a starting point.
David Woodland, Gleadell
concerns are now emerging in North America
For much of this week, rapeseed prices have rallied in the
wake of oils and the soy complex.
Given the falls in the ending stocks of US soybeans (old
and new US campaigns), quarterly stocks which are lower than expected, and a
smaller-than-expected acreage for the new campaign complex prices have been on
an upward trend.
An insufficient rally on palm oil production in South East
Asia has supported vegetable oil prices on the international markets.
With regard to rapeseed's fundamentals, the situation is
still a cause for concern in Australia.
There has been some rainfall but not enough to ease the
water deficit. No significant rainfall is expected in the production region
over the next week, which is likely to continue having an impact on the
country's canola yield potential.
Concerns are emerging in North America. After the irreversible damage registered in North Dakota in
recent weeks, drought is now reaching Canada's canola-producing region.
potential has not yet been affected, but the lack of rainfall over the next two
weeks will do nothing to improve the situation.
StatsCan has published its estimates for Canada's acreage.
For the first time, the record canola acreage of 9.24m hectares is higher than
the wheat acreage, although production will struggle to surpass last year's
levels given the current weather conditions.
In Europe, the harvests began before being stopped in their
tracks by rain.
Additional reports are needed to give a more accurate idea
of France's production level.
Gary Phillips, ODA