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An eye on the grain market - August 1 update, 05.08.19

What to watch: Domestic markets are being dominated by currency as the possibility of a no-deal Brexit looms

An eye on the grain market - August 1 update

The UK saw excellent early quality as the South of England began harvesting, but wet weather has caused concerns as harvest was halted.

Harvest pressure is weighing on US markets.

And UK rapeseed prices have risen on the back of a weaker sterling.

UK - Harvest halted by poor weather as markets react to fluctuating currency

With the UK wheat harvest underway, our domestic market this week has been dominated by sterling volatility and patchy weather.

At the weekend, the new UK Prime Minister signalled the real possibility of a no-deal Brexit which rattled currency markets and caused sterling to drop 2 per cent in value compared to the euro.

However, sterling’s losses added value to wheat and London futures gained up to ?3 per tonne at their highs on Tuesday.

Nevertheless, there are concerns a no-deal Brexit could lead to the UK excluding itself from some of its traditional markets within the EU as impositions of tariffs would make it an uneconomic flow. The importance of securing a quality wheat crop would be vital to maintain exports to premium milling markets into North Africa.

More farmers across the South of England had started to harvest their wheat before unwanted rain on Tuesday brought a halt to proceedings.

Excellent early quality was reported, with specific weights above 80kg and Hagbergs above 300. However, the forecasted wet weather is an increasing concern for ripe crops and uncertainty around this is supporting milling premiums.

Capturing quality is key for maximising the volume of home-grown wheat that our millers can use and, as mentioned, competing in milling wheat markets outside of Europe.

In the meantime, European and world markets have slipped lower. Recently, analysts have cut their wheat crop estimates for Russia but, this week, the Institute for Agricultural Market Studies (IKAR) increased their estimate by 300,000t to 76.4mt.

France is now set to produce its second highest wheat crop ever with analyst, Strat?gie Grains increasing its French soft wheat crop to 39mt up from 34mt last year.

European - All eyes on harvest

European markets have, like all other markets, been watching harvest progress.

The trade is busy still working out how much old crop was left before harvest while trying to ascertain the impact that various past and recent weather events have had on crops. The world is treading water waiting for the August 12 USDA report.

The key will be what, if anything the US authorities do to the US corn area and yield. The impact is likely to be felt through every global cereal market as, fundamentally, consumers of corn must either pay the price for a smaller global crop or substitute with an alternative cereal.

EU exporting countries look to have ended the season with very little stock and as such have been slow to enter the new crop export markets – too many fingers have historically been burnt by selling too much too soon, especially when the Black Sea suppliers currently seem to be in no hurry to ship commodities as farmers come to term with low values caused by stronger currencies and a lack of desire to sell good quality grain as feed.

The issues will last for a while longer and it is not being helped by added uncertainty around livestock feed demand. The impact of swine fever around the world is still likely to be felt but I feel it will be through feed demand in meat producing countries which could ultimately change trade dynamics.

Global - Harvest and a lack of fresh news pressures global grains

Wheat prices slipped lower on both sides of the Atlantic as harvest pressure weighed on markets, with US trade experiencing harvest pressure, improving corn conditions, a strengthening dollar and yet another tweet from US President Donald Trump warning China that 'if and when' he is re-elected, 'the deal that they get will be much tougher than what we are negotiating now... or no deal at all'.

As of the end of last week, 58 per cent of the US corn crop was in 'good/excellent' condition compared with 57 per cent the week before, 72 per cent last year and 71 per cent on average. As a result, Dec-19 CBOT corn fell and settled at its lowest level in more than two months.

The US corn crop is still very late, with just 58 per cent at the silking stage compared with 90 per cent last year and 83 per cent on average. In the wake of Chicago corn and a cooler/wetter forecast across Western Europe, Euronext maize continued lower for a third consecutive day after it reached its highest level in more than 11 months last week and over strong EU imports of the grain.

Meanwhile, according to the Russian AgMinistry, the country's 2019 grain harvest is well ahead of the 2018 pace, with already 51.3mt of grains harvested from 14.9m hectares, compared with 39.4mt from 11mha last year.

Oilseeds - UK rapeseed prices benefit from weaker pound, mixed harvest results

Paris rapeseed futures have been underpinned of late as poor European and Ukrainian harvest expectations were confirmed. Yield results from the latter particularly underwhelmed against expectations.

The lack of rainfall across the continent, notably in France, has taken its toll and it is confirmed that the EU as a whole will need to import more than 5mt seed this season. Perhaps 5.5-6mt to meet its needs.

Typically, the EU would rely on Ukraine in the pre-Christmas period, but sub-average yields and China snapping at its heels for supplies brings extra competition for the EU. As such, imports from both Canada and Australia will assume more importance this coming season.

Prices will need to reflect this.

At home, the pound’s sharp depreciation in the last week, alongside very variable harvest results, has lifted the cash market higher, currently standing at around ?343/t delivered. The fact is that, in the last week, MATIF’s rapeseed market has had less of an influence on domestic UK rapeseed prices than the pound’s daily gyrations.

This makes domestic price forecasting predictions based on supply and demand fundamentals largely impossible and the job of grain analysts superfluous. I knew I should have been a mechanic...

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