Volatility hits grain markets port-Brexit

AGAIN it’s that dreaded word, ‘volatility’ that immediately comes to mind at the moment as a maelstrom revolves around currency, market prices and weather.

Recent rain has helped growing crops, especially spring barley and water irrigators have been used little on potato crops. That said, heat and sunshine are required in abundancy in the next few weeks, but long-range forecasts don’t suggest much change.

A recent USDA report surprised the markets with higher than anticipated sowings of wheat and maize, resulting US Chicago wheat futures falling to a nine-year low and soft wheat futures fell by more than 3% to its lowest level since 2007.

The US wheat crop is now estimated to hit a four-year high of 60.3m tonnes, with a planted area of 50.8m acres. On top of that, at 26.7m tonnes, total US wheat stocks held on June 1 were 30% more than at the same time last year and the highest in 28 years.

The International Grains Council has also raised its estimate for world wheat production in 2016-17 by 7m tonnes, taking it well ahead of consumption which it puts at 720m tonnes – again increasing stocks by a further 9m tonnes.

The USDA report also highlighted the prediction of a 38m ha US maize crop, which was higher than the market had expected and 200,000 ha more than the report in March. It’s the third highest on record, going back to 1944.

The Chicago Board of Trade futures, as a result, closed at new contract lows having lost almost 20% of their value in the past two weeks.

Speculators had their bets on the US maize crop suffering yield losses due to hot dry weather, possibly as a result of La Nina, which so far has failed to show. Maize stocks at June 1 were the highest since 1988 and up 6% compared with the same time last year.

However, during the last few weeks, concerns around weather impacts in Europe have escalated, especially for barley markets.

The worst hit countries, France and Germany, are expected to account for 45% of the EU’s total malting barley production in 2016-17. The concerns are mainly with the French crop and these have added support to European malting barley prices.

Early French harvest results show lower than ideal specific weights and could mean increased proportions of feed barley supplies on the continent and potentially increased competition for UK feed barley exports.

Wet conditions in France allowed only 3% of the winter barley crop to be harvested by June 27, compared to last year when 35% had been cut by that date.

And, French wheat crop conditions declined again last week from 71% to 65% of the area rated ‘good to excellent’ and the winter barley rating fell from 67% to 62%.

The IGC reckoned that world barley production will be 145m tonnes, or a 3.1m tonne increase from last May. That would leave world end stocks at 33m tonnes in 2016-17, which is a 2.5m tonne increase from last month and a 12% rise year-on-year. Consumption is forecast to be down 2% year-on-year due to plentiful supplies of alternative feeds.

Forecasted barley production for the EU, the world’s top grower, has also been increased by 1.1m tonnes to 62m tonnes due to increased spring barley production.

The US soyabean area, despite being estimated at a record 33.9m ha, was not as high as had been anticipated. Soys stocks at June 1 of 23.7m tonnes were 12% higher than the estimate that traders expected and were higher for a second consecutive year, almost 40% higher than at the same time last year.

The market has reacted to all this potential glut. The Liffe feed wheat futures for November, 2016, were down £1.50 on the week to £118.50 though for November 2017 were unchanged at £127.80.

Nearer home, sterling was again a major influence on UK prices last week, cushioning the declines in global feed grain prices and amplifying the gains in international oilseed markets.

Wheat futures started the week higher as weaker currency gave some market support. The pound has oscillated around €1.20 euros, but slipped to €1.19 at the end of last week – its lowest level since March, 2014. Sterling also hit $1.33, only slightly ahead of its 31-year low against the dollar at $1.32.

On the spot markets, delivered bread milling wheat in the North of England in July was up £9 to £150.50 and feed wheat was up £3 to £119.50. Full spec’ bread wheat prices delivered to North-west England have reached their highest level and largest premium over nearby UK feed wheat futures since last July.

With recent wet weather across Europe, the rising milling premium suggests markets are factoring in tighter milling wheat supplies compared to feed.

Oilseed rape delivered Erith was up £15 to £287.50 ex-harvest and UK rapeseed values received a double boost last week as gains in international oilseed markets were helped by a weakening in sterling and international markets were led higher by Chicago soya futures following the USDA report last week.