Agrimoney.com's weekly market view from Europe throws light
on topics such as European Union versus Russian wheat exports… German wheat
quality… UK crop yield debate…. biodiesel margins…
Global rapeseed and canola supplies remain under threat.
European markets and grain prices still crushed by Russian wheat exports.
Things to watch
Downward trends in Canadian wheat production causes supplies
of higher quality milling wheat to fall.
The UK must make its decision on whether to be involved with
End of August sees
contract lows across the board
Following a run of consecutive lower closes into the end of
August, when both Chicago wheat and corn hit yearly contract lows, the markets
have consolidated as signs of short covering emerged.
Fund managers have reverted back to a short position in most
commodities as non-threatening US weather is deemed bearish to the markets.
Although the global outlook for coarse grains remains heavy,
supplies of higher quality milling wheat continue to dwindle lower, with the
recent downward revision in Canadian wheat production.
EU markets also hit contract lows in the last few days of
August. They too have traded higher, although the spectre of increased Russian
wheat exports continues to weigh on world and European prices.
The aggressive early pace of Black Sea exports is contrary
to European exports, currently running more than 50% behind last season's pace,
and with Russia holding a near-monopoly on Egyptian orders, European traders
will need to find some extra demand in order to shift this season's higher
In summary, next week's US Department of Agriculture Wasde
crop supply and demand report is unlikely to shift the bearish influence of
record global wheat stocks, although the trade will be more concerned with what
USDA reports in terms of US corn yield and production.
However, unless we see some major surprise in the USDA
report, global grain stocks remain burdensome, and this provides resistance to
any major price rallies.
Question mark remains
over EU wheat quality
On paper, a late-April cold spell in France/Germany
[accounting for more than 40% of the EU soft wheat production] coupled with a
prolonged period of dryness in Spain/Italy and frustrating July/August rain
across the northern part of Europe could have offered a friendly environment
Instead, December Matif milling wheat futures have been
posting new contract lows for the last five weeks, with a surprisingly good EU
wheat crop estimated between 148m-150m tonnes compared to around 144m tonnes
last year and the 10-year average of 142.9m tonnes.
Europe - like any other major exporters - continues to be at
the mercy of the mammoth Russian wheat crop now pegged at a record 85m+ tonnes
by some private analysts.
However, a big question mark remains over the quality of the
crop - except in France - after relentless summer rain in Germany/Poland, which
is currently resulting in higher milling premiums on the domestic cash markets.
As a result, Germany has exported only 472,000 tonnes since
the beginning of the marketing season on July 1, compared with 775,800 tonnes
last year. The pace is 24% below the three-year average.
The recent rise in the "safe-haven" euro against the US dollar
is also negative for exports as it makes the EU origin less competitive on the
Benjamin Bodart, CRM
Questions over a need
for UK markets to export
UK markets continue to struggle with the end of harvest and
global market uncertainty.
The global issues surrounding weather, logistics and
politics will keep markets on their toes, but the issue for the UK is more
about crop size.
The reports on yield are so variable that trying to
calculate a crop number is proving very difficult. But this will be the key to
any further price movements. Does the UK need to export grain or not?
Unofficial export numbers for July would imply there was a
reasonable export through the ports, but most of the wheat moved was actually
shipped to other UK destinations.
This UK-to-UK movement makes sense when you look back at
domestic regional price variations. However,
there was also a reasonable tonnage of imports of maize and wheat from other EU
and non-EU origins.
All these factors need to be monitored, as it will change
the domestic dynamics as will the variability in quality we are seeing in some
No two years are ever the same and market prices will always
reflect the real pressure, or lack of it, in the domestic market.
But we cannot afford to allow too many imports only to have
to drop prices dramatically to remove any surplus we may have, later in the
industry treads water
Soybean production in the US and South America this season
are unlikely to reach last year's record levels, although it will greatly
depend on the end of the growing season in the US where crops in the Midwest
continue to suffer from dryness.
As a result, money managers have likely started to reduce
their shorts this week, which translates by a four-session winning streak of
more than 4.5% on Chicago.
Global soybean output will still be more than sufficient to
satisfy a growing global demand in 2017-18, particularly if, as reported by a
USDA attaché, Chinese soy imports will be less than initially thought due to
high domestic stocks and ongoing negative crush margins.
Global tensions with North Korea as well as the hurricane
damage from Harvey, followed by the risks posed by Irma and Jose are
underpinning crude oils prices this week and adding to biodiesel production
Despite domestic and European rapeseed output being better
than expected this year except in Germany, global rapeseed/canola supplies
remain under threat, particularly in Canada and also Australia where the
ongoing threat of dry weather has now be escalated with untimely frost damage.
The EU this week is looking at whether it will lower taxes
on the imports of Argentine biodiesel which is important for Argentine and EU
biodiesel prices. Argentina has suffered a significant blow recently, with the
preliminary decision of the US to raise import taxes for Argentine biodiesel.
Strength of the euro is limiting gains in Euronext rapeseed
values for now, although a weaker sterling is helping to underpin domestic
values in the UK as well as tight stocks from last season.
James Bolesworth, CRM