- The coronavirus outbreak continues to weigh on virtually all global commodity market prices, particularly for the US where it is likely to disrupt China’s buying programme for agricultural products.
- Wheat exports from the European Union and Ukraine continue to move at a strong pace, with EU shipments up 65% on the year.
- Unwillingness from Russian farmers to sell has seen prices soar, although with no apparent new-crop issues and a greater area of wheat in the ground, that may change in the coming weeks.
What to watch
2020 wheat production estimates remain difficult to predict, but it is clear we will need to import a huge tonnage.
The spread between UK and Continental prices will remain the key metric to monitor.
London May wheat futures closed on Thursday at £153.25 per tonne, a rise of 0.5% week on week.
Paris March wheat futures closed at E193.00 tonne, up 0.4% week on week.
Paris May rapeseed futures settled at E394.25 tonne, down 0.8% week on week.
Nervous outside markets weigh on UK wheat prices
The UK wheat market was on the back foot for much of the last week.
Pressure initially came not from the domestic fundamental situation, which remains supportive, but rather from outside influences, led by a switch by the financial investment community into “risk averse” mode.
This negativity, rightly or wrongly borne from fears over the coronavirus outbreak, weighed on virtually all global commodity market prices, including grains.
Over the last 48 hours, however, global sentiment has rebounded and after a couple of positive London LIFFE settlements, we have clawed back some of the early week losses.
Volatility is expected to remain elevated.
Many UK farmers have this week been able to recommence wheat drilling and with a couple of days of relative dryness ahead, amid windy conditions, soil conditions may improve ahead of Storm Ciara which is expected towards the weekend.
Wheat production for 2020 remains difficult to predict, but already it is clear we will need to import a huge tonnage of wheat to compensate for lower output.
As such, the spread between UK and Continental prices will remain the key metric to monitor.
Currently, new crop prices are trading at a premium to France of about £2 per tonne.
Historic analysis suggests this may not be sufficient to attract the volumes we need, were production estimates to eventuate to the downside of current projections.
Rupert Somerscales, ODA
EU exports underpin the market
EU prices since the turn of the year have followed the general lead from US markets.
Values rose on optimism following the signing of the phase one China-US trade deal, then fell following the outbreak of coronavirus in China that threatens to disrupt and delay Chinese purchases of agricultural products.
The continued pace of EU exports has underpinned the market.
Shipments are up 65% on the year.
Strike action in France over pension reform has crippled the movement of grain, causing exporters to load vessels in Germany and the Baltic states rather than France.
This in turn supported cash premiums in those areas.
Russian export prices fell last week for the first time since November as strong competition on the international markets is starting to pressure prices.
More favourable EU and Black Sea weather, little threat of winter kill (albeit there are expectations of a sharp temperature drop this weekend in Russia) and signs that movement in France appears to be improving could provide some resistance for higher prices.
With key importers now covered into the last quarter of the 2019-20 marketing season, it may well be the Russian farmer that either makes, or breaks, the market.
Continued unwillingness to sell has seen prices soar, resulting in lost exports for Russian traders, although with no apparent new crop issues and a greater area of wheat in the ground, they may be forced back into sell mode in the coming weeks.
David Woodland, ADM Agriculture
Rapeseed plummets on China’s coronavirus concerns
Another week has gone, and China’s coronavirus continues to spread, although less rapidly, with more than 28,300 cases confirmed and 565 people dead.
Equity, energy and commodity markets have all posted steep losses over the last two weeks amid a potential significant slowdown in the Chinese economic growth this year.
The market was eager to see China buying large volumes of US agricultural goods but the “export boom trade from that deal will take longer because of the Chinese virus” according to the US president’s economic advisor, Larry Kudlow.
As crude oil prices fell below the $50-per-barrel mark for the first time since early 2019 on Monday, the oilseeds complex has also been severely hit.
Coupled with political tensions between Malaysia and India, palm oil has abandoned nearly 17% in the three weeks ending January 31, whilst May Paris Euronext rapeseed tumbled 6%, or E24 per tonne, over the same period to hit a fresh one-month low.
The record South American soybean crop, in the making was also weighing on the broad oilseeds complex.
Medium term though, rapeseed and palm oil fundamentals, which have not changed overnight, are set to remain tight.
As such, prices could well rebound in the weeks ahead with buyers re-entering the market, amid rising production concerns.
Benjamin Bodart, CRM AgriCommodities