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Weekly grain and oilseeds market view from Europe

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EU wheat prices have continued to drop as exports wane in the face of high Russian supplies.

In the UK, Defra's 15.2m-tonne wheat crop number has been put under increasing scrutiny as analyst crop numbers show divergences.

Dry conditions in Australia are causing problems for the canola harvest. But in Canada, yield reports are generally good, albeit lower than last year.

Key trends

High Russian wheat supplies dictating the price of EU exports.

Things to watch

The European Commission's proposed import duty on Argentine biodiesel, weather in the US as harvest of corn and soy continues, and the impact of an EU decision to reduce tariffs on corn imports.

Global grain

US harvest continues slowly while EU wheat exports slump

Markets have been taking a breather over the past weeks, with sideward price movement reflecting the current uncertainty over market direction.

US funds seem comfortable holding their short Chicago wheat position, given the current concerns over future demand for US supplies, and a lack of global weather issues.

US weather remains favourable to corn and soy crops, and although the harvest pace is dragging versus that seen last season, the fact no early frosts are seen in the forecast should allow harvest to continue with little threat to yields.

EU wheat prices continue to drift lower as the export pace remains slow (down 35% year on year). The vessel line-up is thin, and the fact Black Sea wheat continues to undercut EU values give little scope for an upbeat outlook.

Russian supplies, again and for the third consecutive tender, monopolised this week's Egyptian interest, securing all purchased tonnage.

Even this early in the season, it looks highly unlikely European Union exports will get anywhere close to current projections, unless we witness a major shift in pricing policy, either in the EU or Black sea regions.

Global supplies of top-grade milling wheat continue to diminish as the outlook for the Australian wheat crop is not favourable.

David Woodland, Gleadell

European grain

Ferocious Russian competitiveness and politics weigh on EU grain

The post-harvest rally has paused on Euronext wheat, with the European futures benchmark set to post its biggest weekly fall in 10 weeks after dropping to its lowest level since September 13 yesterday (October 12).

Major catalysts behind this week's decline in price remain the fierce competition coming from the Black Sea, in particular Russia and the rally in the euro.

On Tuesday, Egypt's Gasc once again booked exclusively Russian wheat as the French origin was still $9a tonne out, explaining why the EU exports have remained so slow (35% down from a year ago at 4.7m tonnes).

However, FranceAgriMer reduced its 2017-18 French soft wheat stock forecast yesterday from 3.4m tonnes in September to 3.2m tonnes this month, citing increased demand within the EU.

It is important to point out though that French soft wheat stocks remain more than 10% above the 2.8m tonnes five-year average and, at 10.2m tonnes, the non-EU exports seem too optimistic.

The decision from the EU to reduce its tariffs on corn imports was also weighing on European feedstuff prices, while farmers are making the most of the unseasonably warm weather on the Continent to progress rapidly with their corn harvest.

As a result, Matif corn settled on Wednesday at a fresh contract low of E151.50 a tonne on the November contract.

Benjamin Bodart, CRM Agri

UK grain

Defra's wheat crop number under scrutiny

The UK market is slowly digesting Defra's 15.2m-tonne wheat crop number.

There are many who find it hard to accept, and analysts have entered their crop numbers into the public arena to show the divergences.

The difference is difficult to justify except to say that this harvest has been particularly difficult to measure. Farmers have experienced differences between fields, varieties and moistures and the full details of how Defra reached its numbers are yet to be published.

With such a variation in crop numbers, the real question is does the UK trade a price which just stops imports or does it need to join the EU and global exports competing for destination markets?

This uncertainty will be clarified as time moves on and domestic consumers decide what they want to use and if there are cheaper alternatives in the form of barley and imported corn.

The usage data published by Defra/AHDB is a reasonable guide, but with data only available for the first two months of the year and no data on food and industrial use published for a few more months, focus will remain on ex-farm availability to cover spot shorts.

Early customs data for August showed a reasonably poor export number, but with imports for July/August almost 100,000 tonnes more than exports.

The question is, do imports remain larger than exports all season?

Cecilia Pryce, Openfield

Oilseeds market

Questions over future EU import policy creating price volatility

Rapeseed prices have been trading sideways in UK and European markets in the past fortnight, despite ongoing uncertainty about the EU's import policy towards Argentine biodiesel and volatile macro-economic influences.

The European Commission is currently examining a new form of import duty on Argentine biodiesel between now and the end of the year which aims to step around the constraints of WTO rules.

As such, policy uncertainty is set to continue for the foreseeable future, adding unwanted price volatility.

Despite a slight pick-up in risk aversion by traders, the all-important French rapeseed market has had decent support in the last fortnight, thanks largely to favourable changes at the macroeconomic level, with the euro-dollar exchange rate falling by more than 2% and crude oil increasing by nearly 2%.

In the last few sessions, though, futures values have pulled-back a touch, weighed by fresh data from Malaysia which showed a big slowdown in palm oil exports. In turn, this encouraged oilseeds traders to trim their long positions.

Domestic rapeseed prices have gyrated to the tune of currency markets and the Matif reference futures market, rather than any local issue.

Elsewhere, the Canadian canola harvest is gathering pace with around 64% of the acreage currently harvested and with yield reports generally good, albeit lower than last year.

In contrast, conditions in Australia remain very dry and little beneficial rains are forecast for the coming week.

Rupert Somerscales, ODA


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