The likelihood of the UK carrying out an excess of 2m tonnes was becoming more of a reality, with market dynamics still pointing to an oversupply.
Russia’s exports have increased but the European Union was struggling to keep pace with the potential for a burdensome year-end stock build weighing heavily on values.
May 2018 London wheat futures closed on Thursday, February 8 at £138.00 a tonne, unchanged on the week
Market dynamics still point to oversupply
The London market traded earlier this week at a yearly low, as the pound soared to its highest level against the US dollar since the UK voted to leave the EU.
Despite signs of a fund-led rally in the US, the futures market has been governed more by currency movements and the impact from Brexit talks, as well as the seemingly less secure position of the prime minister, Theresa May.
Although London’s LIFFE market seems to be set in a narrow trading range, UK physical prices in most areas of the north and west have hardly moved, as sellers remain reluctant to sell the market lower into constant demand from end-users and merchant shorts.
The lack of competitiveness and exports has meant prices in the south and east have eased back over the past month, leaving the market logistics open to increased haulage costs, as grain is being transported further north and west.
Market dynamics still point to an oversupply, and with uncertainty surrounding when, or if at all, one of the country’s bioethanol plants will recommence operations, the likelihood of the UK carrying out in excess of 2m tonnes is becoming more of a reality.
At present, and based on previous seasons, this scale of inventories is well within the scope of farmers’ storage capacity.
However, while they remain reluctant sellers, their action may well erode what little carry is already in the market, as the consumption trade seem less aggressive buying forward with a market carry.
David Woodland, Gleadell
Argentine weather keeps the trade on its toes ahead of key reports
The good start to the year for grain prices continues in February with La Niña negatively impacting crops in Argentina.
Speculators have been bearish about grains for quite some time due to the ever-growing global stocks, but building up a record short positioning for this time of the season has proved to be somewhat dangerous.
Drought continues to spread across the US Plains as well as in key producing regions of Argentina, although some rain in the latter region will slow down the deterioration of the conditions rather than improve the situation.
Since last November, less than 20mm of rain fell in Kansas, the main US winter wheat growing state.
Kansas City wheat futures prices have rallied more 9% since the beginning of 2018 while Chicago soymeal gained 5%.
The Argentine soybean crop has been hit hard by long lasting dry conditions due to La Niña and, as such, many operators have started cutting their production estimates.
Argentina accounts for just 5% of the soybeans exported in the world but nearly 50% when it comes to soymeal.
Further north in Brazil however, a record soybean crop could make up for some of the losses in Argentina.
For wheat, the focus remains on the Russian pace of exports while the outlook for the 2018 harvest is positive in the Black Sea.
Finally, the world barley market is getting tighter and tighter with ongoing strong demand, particularly from China after the Asian ogre launched on Sunday an anti-dumping probe on US sorghum which means they could import more corn and/or barley.
Benjamin Bodart, CRM AgriCommodities
Adverse weather provides support for oilseeds
It was not only outside markets (stocks/bonds) that had a tantrum this last week.
World oilseed prices have also been awakened from their slumber, led by Chicago soybean futures.
While sharp swings in bean prices can partly be explained as spillover from volatility elsewhere, fundamental reasons for uncertainty in the oilseeds market are becoming increasingly apparent.
Of these, the ongoing extreme dry weather in Argentina and soaking rains in Brazil are at the forefront of traders’ minds.
With little precipitation forecast for Argentina, the world’s largest exporter of soymeal, production estimates are being revised lower.
In addition, farmers are withholding stocks from the export market while their currency plunges and truck drivers are on strike.
Further north heavy and persistent rains in Brazil are preventing freshly harvested inland soybean supplies from getting to the ports.
So, with restricted supplies from the key South American market, the prospects of additional soybean exports from the US are currently being factored in, helping prices gravitate higher.
In Europe, rapeseed values have also started to climb, partly as a result of the soybean story gaining traction, but also on a weaker euro/dollar and the fact the EU needs to import rapeseed in volume.
However, recent heavy price declines have made the EU an unattractive outlet for Canadian or Australian canola.
More upside in prices is therefore anticipated.
Rupert Somerscales, ODA