The UK wheat market is adequately supplied for now, especially for milling grades.
Globally the current Russian tax system is making new-crop wheat trading almost impossible.
The exceptional speed of US soy sales to China tightened the US supply situation beyond expectations.
What to watch
The relative new crop price structure increasingly argues that the UK will be a net wheat importer again this coming season.
UK markets subdued, but £200 per tonne ex-farm wheat is still on the table for most
Amid frequently volatile trading conditions, domestic grain prices slipped week-on-week, as our markets tracked European and global price movements lower, with a stronger sterling also contributing.
Nonetheless, at the time of writing, the May 2021 contract on London’s Liffe market is holding the £200-per-tonne support mark. Unlike the global situation, UK cash markets continue to be largely moribund in nature.
Trade data showed UK wheat imports in January at just over 100,000 tonnes - the lowest monthly total of the season and follows the huge December number of 333,000 tonnes.
January maize imports totalled a substantial 319,000 tonnes. The local wheat market is clearly adequately supplied for now, especially for milling grades. Cash brokers report scant nearby demand, with buying interest seen predominantly for May/June only.
Conducive field conditions have allowed most to pick-up their spring drilling pace, which is helpful, since the challenging autumn conditions for many argue for a large spring acreage undertaking.
While it is too early to say a UK grain production number with confidence, the relative new crop price structure increasingly argues that the UK will be a net wheat importer again this coming season.
The spread between new crop UK and Paris wheat futures has narrowed £15 per tonne since Christmas, to around £2 per tonne presently. Much will depend on UK spring and summer conditions to see if this can be sustained.
Rupert Somerscales, ODA
Old crop bail-out puts wheat on hold
The global market has drifted over past weeks due to lack of buying activity and improved new crop prospects.
As spring sowing commenced in the Northern Hemisphere under mostly favourable conditions, old crop long holders have been exiting the market, staring at the inverse with new crop in EU and Black Sea markets.
The market carry in the US and increasing freight costs have also put US wheat prices under pressure, with buyers seemingly reluctant to pay up with local harvests only a matter of months away.
On their own, wheat fundamentals remain negative, not helped by the perceived building of global stocks due to the envisaged record 2021 harvest.
Weather will now take greater importance as US spring sowings begin and, with the historically low US carry-outs for corn and soybeans, the trade will adopt greater scrutiny on planting progress and crop development.
In addition, corn has also gleaned support from planting delays and talk of lower production in South America. The late soybean harvest is delaying the sowing of Brazil’s second corn crop and months of dry weather have seen Argentinian crops steadily decrease. Any signs of disruption to the supply side will encourage speculative buying, dragging wheat higher in the process.
The current Russian tax system is also making new-crop wheat trading almost impossible. The world may have to gauge how to replace the 10m-12m tonnes of wheat that Russia usually ships over the harvest period.
David Woodland, ADM Agriculture
Wheat market currently struggling to head firmer
EU grain markets are currently at a standoff. Global buyers seem few and far between and farmers domestically also do not seem keen to partake in any way. With 16 weeks left of the season and very little confidence in what is really left to ship, caution may be the correct approach.
The wheat market has maintained its recent trading range but currently struggles to head firmer, although any further rise in global maize values may just change this.
Long holders are likely to have relatively cheap purchase and with the Russian tax not showing any signs of being removed or even having a firm timeline for change, it makes trading very difficult.
There are on-paper countries which will need to buy grain in the next 16 weeks and basis prices today suggest the EU isn’t in a bad place to capture demand. But too much demand could be matched by farmers closed or empty silos.
As the weeks progress the crop conditions will become better known and livestock feed demands should drop off, which may give farmers confidence to sell the remaining tonnes.
While new crop values struggle for a price lead from the Russians and general global unknowns around crop sizes, caution is likely to be wise but the grain still needs trading and consumers to be fed.
Cecilia Pryce, Openfield
Demand from China leaves US exceptionally tight
Soy markets, like corn, are caught between the opposing market forces of currently tight US supplies, against the arrival of larger South American supplies and long-term projections for an increase in the US planted area for harvest 2021.
The exceptional speed of US soy sales to China tightened the US supply situation beyond expectations. All US soy exports are now totalling just over 60.4m tonnes of combined exported and committed exports, already exceeding the United States Department of Agriculture’s full season estimate.
As the US remains exceptionally tight, the focus has been on Brazil, where a delayed harvest is prolonging the tight global oilseed market.
Looking ahead, and the memory of the wet planting of 2019, and the storm damage of the 2020 crop are still in very recent memory, with markets yet to have confidence in next season’s crop.
For rapeseed, the cumulative aspects of the bullish US vegetable oil market, a climb in crude oil and strong Chinese demand for Canadian canola have all contributed to the substantial push higher in price. We may not be at the top just yet, but all bull runs come to an end, and crude oil markets are now stabilising.
The South American soy supply is entering global markets and at 4.7m tonnes, the pace of EU imports this season has overtaken last season to set a record pace, easing the deficit.
Peter Collier, CRM AgriCommodities