London wheat futures for May closed on Wednesday, January 10 at £141.00 a tonne, up 0.6% so far in 2018.
Despite a positive start to the year, European Union wheat prices may find it difficult to break higher due to a strong euro and export competition.
And despite firmer energy and oil values, the oilseeds markets continue to be held back by weather and the pace of US exports.
EU wheat exports continue to struggle
Despite a positive start to the year, EU wheat could find it difficult to break higher due to the strength in the euro and the ongoing fierce competition from the Black Sea.
The promising outlook for the 2018 harvest could also keep a lid on prices, although it would be too risky/early but still plausible to see a new record wheat crop in Russia.
Sluggish EU exports were confirmed once more this week as FranceAgriMer lowered its forecast for 2017-18 French wheat exports out of the EU for the third consecutive month.
However, in our opinion the cut was not severe enough and the 9.3m tonnes objective is still too optimistic.
Based on historical data and this year’s pace, the EU wheat exports could be closer to 23m tonnes than the European Commission’s estimate of 26m tonnes.
Short-term, the lack of weather disruptions means Russia continues to export wheat at a record pace this season, with more than 20m tonnes already exported through to December.
However, the lack of snow protection also means that a very high risk of winter kill exists across much of the Black Sea.
The latter will keep operators on their toes and 2018 could see the return of volatility.
Benjamin Bodart, CRM AgriCommodities
Global grain markets remain largely at an impasse
There have been a number of buyers come to the market from Algeria, Egypt and various Asian countries in the last week but nothing seems to be enough to get the trade thinking bullish thoughts.
Export data from the surface looks like many countries may have a reasonable amount to ship in the coming six months but much can change and the pace, which some see as needed, is certainly logistically achievable.
Weather is starting to feature on many news wires, with cold weather an issue for North America and a general lack of moisture an issue for many areas of South America.
With a USDA report due out at the end of the week there are also many trying to second guess any changes which may be viewed as a fundamental change, to a generally well-supplied global grain market.
Too many years of a well-supplied marketplace is starting to make some slightly apprehensive that it can carry on like this forever.
Or are agronomic improvements overcoming the laws of probability?
Cecilia Pryce, Openfield
Mixed outlook for global oilseeds
Despite firmer energy and oil values, the oilseeds markets continued to be held back by weather and the pace of US exports.
Although this season’s US soy crop was the largest ever, the lack of quality may be one of the prime reasons exports continue to lag.
This week’s USDA report is expected to show a cut in the US oil yield, following recent crush data. In addition, US bean stocks are also expected to rise, due to a potential hike in the crop and a lower export projection as vessel line-ups show a decline in Chinese imports, as crush margins turn negative.
Matif rapeseed has shown minimal gains on a lower euro and as soybean prices edged higher on South American weather issues, mainly in Argentina.
Potentially crop losses may be offset by another production increase in Brazil following favourable rains.
Canadian canola remains unchanged.
Asian markets have been mixed with a weaker currency helping Malaysian palm oil trade, despite December’s 7% increase in stocks to 2.7m tonnes, the highest level in more than two years, and the highest December figure since 2000.
In summary, this week’s USDA should provide enough data for traders to digest, before the market returns to concentrate on South American weather.
The fund short in Chicago soybeans is now put in excess of 90,000 contracts, which needs to be watched as the Brazilian forecast turns drier.
David Woodland, Gleadell