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Weekly grain market view from Europe

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Stronger sterling ahead of Thursday’s interest rate rise by the Bank of England put pressure on UK grain and oilseed price.

 

In Europe, a sharp US sell-off has driven prices down, following support from a weaker euro and rising Russian prices in recent weeks.

 

And Rupert Somerscales discusses how the narrative in global wheat markets is changing.

 

Key trends

 

Aggressive Black Sea pricing campaign is undermining the EU wheat complex.

 

Milling premiums have continued to erode slightly, with millers now well covered until the end of the year.

 

Things to watch

 

Oilseed markets continue to watch the South American growing conditions, with a good amount of rain needed in Brazil.

 

May 2018 London wheat futures closed yesterday at £144.75 per tonne, a rise of £0.50 per tonne on the week.

 

 

Global grain

Wheat market narrative is changing

 

Is it too much to believe in a positive wheat price scenario? Looking at the facts, on one hand the world has again produced a great big wheat crop in 2017-18.

 

Depending on how you look at it, world wheat stocks are around a record high. We can all agree on this data. Doomsayers can unite in price dismay. However, things are not always as they seem.

 

Just peel back the skin of this particular onion and some cracks begin to appear in the negative price scenario.

 

We know China holds half the world’s stocks of wheat. And we know China’s imports/exports are relatively negligible.

 

So cut in two the world’s stocks of wheat, for starters.

 

We also know Russia can only “dump” 32m tonnes of wheat on the market in a good year, if they are lucky with the weather.

 

Indeed, they could have an 800m tonnes wheat production, it doesn’t matter to the world - they can still only get 32m tonnes to the global market.

 

Sure, we are lucky to have a rising global wheat production this season. It is a good thing. Supplies have met demand in roughly equal proportions.

 

If it doesn’t next year, then what?

 

Rupert Somerscales, ODA

 

 

European grain

 

Sharp US sell-off drives European prices down

 

European grain has recently seen some support surface from a weaker euro, on talk of US rate hike, and rising Russian prices, mainly driven by ongoing export demand and a firmer currency.

 

However, Tuesday’s sharp sell-off in the US drove European prices lower, with follow-on selling evident on Wednesday.

 

EU soft wheat exports continue to drag last season’s pace and, at 6.52m tonnes in the year to date, are 23% lower year-on-year.

 

A continued aggressive Black Sea pricing campaign is undermining the EU wheat complex, resulting in a strong start to this season’s export programme. At the last four Egyptian tenders, only Russian wheat has been purchased, and when offered, French wheat values have been around $10 per tonne too expensive.

 

This leaves the EU primarily focused on the North African markets, where Russian wheat is not on the list of approved supplies to several destinations.

 

This was clearly demonstrated in the recent Algerian 660,000-tonne optional-origin tender, where the final price paid reflected a French value below replacement, when adjusting for normal costs and freight.

 

EU export prospects will remain pressured unless we witnessed a substantial decline in EU prices, or a similar increase in Black Sea values, that make EU values more competitive into international markets.

 

Until this occurs, the EU markets will continue to be driven by Russian export prices and eurozone currency fluctuations.

 

David Woodland, Gleadell

 

 

UK grain

 

Global stocks weigh on UK prices

 

Domestic wheat values were pressured for much of this week by a combination of factors, which included pressure from global market and a stronger sterling, ahead of Thursday’s interest rate rise.

 

A stronger pound in turn makes UK goods in US dollar terms less competitive and hence puts pressure on domestic market in order for them to remain competitive.

 

Milling premiums have continued to erode slightly with millers now well covered until the end of the year, although they remain rangebound hovering over the £10 a tonne mark, slightly above last year’s £7 a tonne.

 

Malting barley premiums continue to trade at their highest since the 2011-12 campaign following a frustratingly wet harvest.

 

James Bolesworth, CRM AgriCommodities

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