Friday, 5 January 2018

Market Review 22nd Dec 2017

 
 

US markets consolidate somewhat above recent lows this week, with fundamental news relatively thin.

  • DEFRA reduce UK wheat crop estimate to 14.8mmt for 2017 (down from 15.163mmt prev.) This represents a 5% increase on 2016.
  • Scottish Gov. reduce 2017 wheat production to 889tmt, down 41tmt on prev.
  • German winter wheat area down 4.7% according to the German statistics authority.
  • US funds estimated net short 250.3k corn, 163.9k wheat.
  • India is reportedly considering raising the 20% import tax on wheat to further encourage an increase in the domestic wheat area.
  • Sovecon increase Russian wheat exports estimate to 35.5mmt, up 500tmt on prev. Russia’s Deputy AgSec suggests that 40mmt would be achievable based on the current pace of exports.
 
WEATHER/CROP DEVELOPMENT
 
  • Parts of Argentina receive rains over the last week, though areas missed include Buenos Aires, Santa Fe and La Pampa. Foreword forecast appear to indicate hotter, drier conditions are set to continue for a number of areas.
  • Freezing temperatures are affecting much of Mid North America, though there’s now snow cover in place in parts of Nebraska and Kansas. Little winterkill is thought likely at present.
  • Argentina’s BA exchange report wheat harvest now 72.5% complete, up 14% on the week.

BOTTOM LINE:
Quiet news week, with low volumes traded indicative of the holiday period.
 
Short term, the focus may be around the extent of any US fund short covering in advance of the New Year, given the large shorts in wheat/corn. Ample Global grain supplies continue to restrict upside.
12th Jan USDA report is the next major fundamental marker for the trade – expect range bound trade in the lead up, failing sharp weather developments/fund short covering.

Wednesday, 20 December 2017

Decmeber 2017 Update

December 20, 2017
 
December can often see a firming in spot trade with farmers reticent to sell. Cash-flows bolstered by the arrival of the single farm payment coupled to farms shutting down for Christmas from mid-December onwards make it a hard month to buy, often leading to a short rally. Whilst the closure of the Vivergo plant at Hull has taken some of the steam out of the market, there are still plenty of buyer’s in the market; however this is yet to translate into any meaningful increase in values. December old crop continues to trade at £143-145/t depending on location, with a carry of £1/t/month further on. It would be hoped that buying-demand in January may lift the market but at present the atmosphere is as dull as dishwater.
New crop provides a much more compelling argument; values have drifted over the last month and now sit at roughly £142 for November’18 and £137 for harvest. Wheat crops in the north are variable, with those drilled in wet and cold conditions or following potatoes looking a little thin. Over the last four years the world has produced four big grain crops, with Russia setting a new record for its own grain production each year. With this in mind, it could be argued that one of the big producers is due a poor crop sometime soon. Furthermore, if domestically we do not produce more grain next than this, it is hard to argue why values should be much lower than they are at present. Ultimately though, currency will likely be the greatest influencer with the relative strength of the pound managing the risk of imports.
Despite the perceived flatness of the wheat market, wheat in the north continues to trade at a substantial premium to the rest of the country. This is certainly worth bearing in mind when looking at low-grade milling premiums, which are often negligible. The delivered value of wheat to Ensus is virtually the same as into most Yorkshire mills for all but full-spec milling wheat. Therefore it is prudent to double-check the feed market before trading a ‘premium’ and opening the door to claims you may have otherwise avoided.
Feed barley is still trading relatively horizontally at £128-130/t for January; again this seems to have found a comfortable level and, given the poor export market for feed barley, is unlikely to fluctuate.  OSR (Oilseed Rape) has had a fairly torrid time over the last few weeks; the French recently reported that OSR plantings are up 9.5% year-on-year, leading to a further reduction in values. A slight recovery in the value of the pound has led spot OSR values to fall to around £308/t for December. Very little OSR has traded in recent weeks since values fell from £325 spot. Given the time remaining until the next harvest, and the volatile nature of the OSR market, most growers will be happy to sit and watch in the hope there will be another £10-15/t rally.
Early December saw a rapid reduction in the value of Urea, with the most competitive importer putting the product onto farm at £250/t for January, almost at parity with UK AN at £247/t on the same terms. Imported AN looks a much better buy against UK at the moment with a £15/t spread between the two. A recent sharp upturn in the price of natural gas will most likely see all suppliers move prices upwards as the cost of production increases.

Market Review 20th December 2017

Markets continue to trade sideways as the USDA reiterate bearish World wheat fundamentals once more.


• USDA increase world wheat crop to a record 755mmt, up 1.5mmt on last season. Stocks of 268mmt also a new record.
• Informa place US winter wheat plantings estimate at 31.1.m/a, down from 31.9m/a (32.7m/a last season). Of that, the HRW area is expected down 5% on last year.
• AgRural suggest Brazilian corn harvest this year will reach just 84.1mmt, down from last year’s 97.6mmt (USDA Dec est. 95mmt).
• Kazakhstan’s Ag Ministry cut their wheat export estimates by 1mmt for the season to 8mmt, citing increased competition from Russian exports.
• Russian Ag Minister suggests wheat exports could reach up to 40mmt this season (USDA est. 33.5mmt).
• France AgriMer reduce wheat export expectations to 9.5mmt, down 400k. Figure continues to appear high, with French supplies uncompetitive relative to Black Sea grain.
Egypt buys 295k wheat, largely Russian origin. Brazil and Russia have agreed terms for importing Russian wheat, though this is not believed likely given the availability of cheaper Argentine supplies.
• US funds estimated net short 163.2k wheat, 237.2k corn.

WEATHER/CROP DEVELOPMENT
Dryness in the US Southern Plains remains closely monitored, particularly for any sign of colder temperatures and the potential for winterkill. 24% of the country has received insufficient rain. Some rains are forecast for the next 2 weeks, though not to greatly above average levels.
The La Nina weather pattern, if sustained, could keep the Southern half of the US dry going forward.
Argentina forecast for some rains, though more will be required to help mitigate the recent dry period if crop losses are to be avoided.
French farm ministry place winter wheat crops condition at 95% g/e

BOTTOM LINE:
Little supportive to be found in USDA’s report on Tuesday, with abundant supplies of wheat and corn further illustrated.
South American dryness remains cause for concern. Likewise lack of rain for the US Southern Plains and potential for winterkill will be closely monitored - particularly in light of the smaller wheat area.
In light of the size of the US fund shorts in corn/wheat and the proximity to year/month end - short covering remains a possibility over the coming weeks. Though markets may struggle to sustain any rallies, absent supportive developments.
Expect the range bound trade to continue as we move towards the festive period.

Tuesday, 19 December 2017

December Update


December can often see a firming in spot trade with farmers reticent to sell. Cash-flows bolstered by the arrival of the single farm payment coupled to farms shutting down for Christmas from mid-December onwards make it a hard month to buy, often leading to a short rally. Whilst the closure of the Vivergo plant at Hull has taken some of the steam out of the market, there are still plenty of buyer’s in the market; however this is yet to translate into any meaningful increase in values. December old crop continues to trade at £143-145/t depending on location, with a carry of £1/t/month further on. It would be hoped that buying-demand in January may lift the market but at present the atmosphere is as dull as dishwater.

New crop provides a much more compelling argument; values have drifted over the last month and now sit at roughly £142 for November’18 and £137 for harvest. Wheat crops in the north are variable, with those drilled in wet and cold conditions or following potatoes looking a little thin. Over the last four years the world has produced four big grain crops, with Russia setting a new record for its own grain production each year. With this in mind, it could be argued that one of the big producers is due a poor crop sometime soon. Furthermore, if domestically we do not produce more grain next than this, it is hard to argue why values should be much lower than they are at present. Ultimately though, currency will likely be the greatest influencer with the relative strength of the pound managing the risk of imports.

Despite the perceived flatness of the wheat market, wheat in the north continues to trade at a substantial premium to the rest of the country. This is certainly worth bearing in mind when looking at low-grade milling premiums, which are often negligible. The delivered value of wheat to Ensus is virtually the same as into most Yorkshire mills for all but full-spec milling wheat. Therefore it is prudent to double-check the feed market before trading a ‘premium’ and opening the door to claims you may have otherwise avoided.

Feed barley is still trading relatively horizontally at £128-130/t for January; again this seems to have found a comfortable level and, given the poor export market for feed barley, is unlikely to fluctuate.  OSR (Oilseed Rape) has had a fairly torrid time over the last few weeks; the French recently reported that OSR plantings are up 9.5% year-on-year, leading to a further reduction in values. A slight recovery in the value of the pound has led spot OSR values to fall to around £308/t for December. Very little OSR has traded in recent weeks since values fell from £325 spot. Given the time remaining until the next harvest, and the volatile nature of the OSR market, most growers will be happy to sit and watch in the hope there will be another £10-15/t rally.

Early December saw a rapid reduction in the value of Urea, with the most competitive importer putting the product onto farm at £250/t for January, almost at parity with UK AN at £247/t on the same terms. Imported AN looks a much better buy against UK at the moment with a £15/t spread between the two. A recent sharp upturn in the price of natural gas will most likely see all suppliers move prices upwards as the cost of production increases.

Market Review 19th Dec 2017




   Markets continue to trade sideways as the USDA reiterate bearish World wheat fundamentals once more.
  • USDA increase world wheat crop to a record 755mmt, up 1.5mmt on last season. Stocks of 268mmt also a new record.
  • Informa place US winter wheat plantings estimate at 31.1.m/a, down from 31.9m/a (32.7m/a last season). Of that, the HRW area is expected down 5% on last year.
  • AgRural suggest Brazilian corn harvest this year will reach just 84.1mmt, down from last year’s 97.6mmt (USDA Dec est. 95mmt).
  • Kazakhstan’s Ag Ministry cut their wheat export estimates by 1mmt for the season to 8mmt, citing increased competition from Russian exports.
  • Russian Ag Minister suggests wheat exports could reach up to 40mmt this season (USDA est. 33.5mmt).
  • France AgriMer reduce wheat export expectations to 9.5mmt, down 400k. Figure continues to appear high, with French supplies uncompetitive relative to Black Sea grain.
  • Egypt buys 295k wheat, largely Russian origin. Brazil and Russia have agreed terms for importing Russian wheat, though this is not believed likely given the availability of cheaper Argentine supplies.
  • US funds estimated net short 163.2k wheat, 237.2k corn

WEATHER/CROP DEVELOPMENT
 
  • Dryness in the US Southern Plains remains closely monitored, particularly for any sign of colder temperatures and the potential for winterkill. 24% of the country has received insufficient rain. Some rains are forecast for the next 2 weeks, though not to greatly above average levels.
  • The La Nina weather pattern, if sustained, could keep the Southern half of the US dry going forward.
  • Argentina forecast for some rains, though more will be required to help mitigate the recent dry period if crop losses are to be avoided.
  • French farm ministry place winter wheat crops condition at 95% g/e

BOTTOM LINE
  • Little supportive to be found in USDA’s report on Tuesday, with abundant supplies of wheat and corn further illustrated.
  • South American dryness remains cause for concern. Likewise lack of rain for the US Southern Plains and potential for winterkill will be closely monitored - particularly in light of the smaller wheat area.
  • In light of the size of the US fund shorts in corn/wheat and the proximity to year/month end - short covering remains a possibility over the coming weeks. Though markets may struggle to sustain any rallies, absent supportive developments.
  • Expect the range bound trade to continue as we move towards the festive period
 
 
 



Tuesday, 12 December 2017

Market Review 11th Dec 2017


 US wheat markets fall sharply to make new contract lows once more, as Global supplies weigh heavy.

ABARES place Australian wheat production at 20.3mmt (USDA 21.5mmt).

Stats Canada place wheat production at 30mmt (circa 2mmt above trade estimates). USDA estimate 27mmt.
  • US wheat exports circa 7% down on last year, whilst EU exports are down around 22%, as Black Sea supplies continue to dominate.
  • US funds estimated net short 203k corn, 145k wheat.
  • IKAR raise Russian wheat export estimate from 34mmt to 35.3mmt for the season (Russia report a record month for grain shipments in November).
  • Sovecon raise Russian wheat crop estimate to 84.2mmt (USDA 83mmt).
  • Sterling fluctuates this week before closing firmer, as agreement appears closer on the Brexit ‘Divorce Bill’. Further strength will continue to put pressure on London wheat.
  • Coceral place UK wheat crop at 15mmt (DEFRA 15.2mmt). Trade estimate range from 14.5-14.8mmt. 2017 EU wheat crop (including durum) placed at 151.1mmt (5.9mmt up on last season).
  •  Much conjecture remains around the size of the UK surplus, particularly in light of the Vivergo closure.

 
WEATHER/CROP DEVELOPMENT

US HRW forecast appear dry in the 7-10 day models. Southern Plains dryness will continue to be monitored closely by the trade – though it’s thought to be too early for any lasting damage at present.

Argentine dryness continues to be a problem, with only scattered rains over the last week.

Though this is perceived to be more a corn/soybean, than wheat related issue.

Concerns around a developing La Nina pattern for South America continue - suggesting a greater chance for prolonged dryness.

BOTTOM LINE:

Weakness in US wheat has set the tone this week, after five days of consecutive losses driving prices to new contract lows in both CBOT and KS.

Difficult to see the catalyst for a rally at present, other than fund short covering in advance of year end, with markets appearing unwilling to focus on crop 18 production as of yet.

USDA data due tomorrow will be the focus, through historically the January report is often more significant. In light of the above, it appears likely any rallies will continue to be viewed as selling opportunities.

Monday, 4 December 2017

Market Review 4th Dec 2017

US/EU markets make new contract lows before consolidating late in the
week, driven by fund short covering and US/AUS weather worries.









·         DEFRA suggest UK wheat surplus of 1.048mmt, down 35% on the previous year.

·         Exporting this volume may represent a challenge, however, failing a decline in values - with UK wheat expensive relative to other origins.

·         UK domestic consumption forecasts also under review in light of Vivergo’s downtime.

·         AHDB Early Bird plantings survey suggests a 9% drop in the UK’s winter barley

·         area and a 2% drop in the all wheat area. Spring barley area forecast up 3%.

·         Sterling consolidates above recent lows, as agreement around the Brexit ‘divorce

·         Bill’ appears to have moved closer.

·         Russian wheat exports have totalled 16.9mmt this season to date, 28% up on

·         2016/17. Barley sales of 3mmt, up 80% on last season.

·         US funds estimated net short 220.8k corn, 137.4k wheat.

·         Egypt buys Russian wheat cargoes with Romanian offers $5-10 too expensive.

 

WEATHER/CROP DEVELOPMENT
USDA lower 2018/19 US wheat acreage estimate to 45m/a in their baseline projections (45m/a
last season). Forecast for US Southern Plains appear dry in next 7-10 days, with moisture badly
needed.
Heavy rains for parts of Eastern Australia continue to hinder harvest progress. Up to 6 ½ inches
reported in less than 24 hours in parts, with flood warnings in place for a number of areas.
Harvest progress in Victoria/NSW is estimated at circa 30-50% complete. Wheat quality will be
the big question for all unharvested crops in light of these storms.
Scattered rains for parts of Argentina expected this week, though moisture levels remain below
average for this time of year.


 

BOTTOM LINE:
Two sided trade this week, as markets reach new lows before correcting.
Dryness across the US Southern Plains, storms for Eastern Australia and SA weather will all
remain closely monitored, whilst the fund short should provide underlying support to markets
in advance of year end.
That said, Global wheat fundamentals continued to offer little short term reason for markets to rally significantly, with cash wheat in plentiful supply.
Expect range bound trade to continue for the remainder of the year, absent a sharp deterioration in US/SA/AUS weather.