Wet weather but arid trading

IT’S NOW official – December, 2015, was the wettest on record, with UK rainfall reported at 191% of the long-term average.

It was also the warmest with the average temperature of 7.7C being a huge 4.1C above the long term average.

And January started similarly with 60 mm, or more than 2 inches of rain in the first 12 days and again with little or no frost to date. However, by the time you read this, frost might be a welcome climatic change throughout Scotland.

Following the festive break, commodity markets have remained quiet, with 2015’s record yields chasing limited demand.

Traders are also waiting for the next USDA report following a turbulent week on global financial markets, when equities and commodities posted heavy losses but grain markets performed slightly better, with changes in the value of sterling supporting UK prices.

The pound is now working more in exporters’ favour and now equates to €1.34, compared to €1.42 earlier in the month.

UK ex-farm prices remained unchanged, with bread milling wheat worth £114.60 and feed wheat £105.20. Feed barley is worth £97.90 and oilseed rape, delivered Erith, is also unchanged at £270.50.

However, with a nett surplus of 2.5m tonnes of wheat to export from the UK, Liffe wheat futures closed down £2.50 on the week to £116 and, at one point, were as low as £113.75, or £4.75 down from the close on New Year’s Eve.

This week, futures dropped again by £1.50 and oilseed futures were down £3 as crude oil futures closed last week at $33.55 and look to be heading towards $30.

As a consequence, US ethanol fell to 8c per gallon, compared to 29c at this time last year.

Taking a look at price trends so far, reveals that UK feed wheat futures have decreased less in comparison with other contracts in their respective currencies.

All of the key international grain and oilseed nearby futures have declined in value.

Over the course of the season so far, UK feed wheat nearby futures have declined by 2%, compared with 20% for Chicago wheat and 14% for Paris wheat. However, it is important to note that currency fluctuations have also been a key contributor to price changes this season.

The UK exported 30% less wheat in November than it did in the previous month and, at the end of November, we had sold a total for the season of 655,000 tonnes. UK wheat imports at the end of November stood at 660,000 tonnes, which means that the UK is still a nett importer of wheat so far this season.

UK maize imports were also at their highest level since March, 2014, in November at 816,000 tonnes which is 14% higher than the same period in 2014/15.

The US is facing increasing competition from South America as its grains are coming to the market in large quantities due to the weak peso, abolishment of export tax and quotas for wheat and maize by the new president of Argentina.

The scrapping of quotas will add increased competition to global export markets.

The devaluation of the Chinese yuan, plus Russia’s rouble and Argentina’s peso has meant that farmers have sold into resulting higher prices and this is adding to the glut of old crop wheat available for export

Agricultural markets reacted to the volatility in China last week after trading was suspended twice, following sharp drops in shares of up to 7%.

The events are reported to be in response to China’s drop in manufacturing output in December and is the 10th consecutive month that this has been the case.

In addition, 2015 Chinese economic growth is expected to have been the slowest in 25 years. As the world’s largest importer of oilseeds, the market will keep a close eye on economic developments in China.

Its economic weakness is expected to continue throughout 2016, which may result in further yuan devaluations and make importing oilseeds more expensive for the Chinese consumer.

At present, China is a relatively small export destination for UK agricultural commodities but China is a major importer on a global scale, so any reduction in growth could mean a slowdown in global demand expansion.

UK feed barley exports continue and a weaker sterling has helped to maintain prices as world prices come under pressure. Domestic feed barley demand remains low with few forward buyers and adequate supplies available when required.

UK maltsters are well covered for the season but there is some premium for malting export demand for spring varieties.

The soyabean harvest in two of the top growing regions of Brazil, Mato Grosso and Parana, which together accounts for around 50% of total Brazilian soya production is underway. Despite the increase in rainfall, which has improved soil moisture across large areas of Brazil, farmers are still concerned about current weather causing damage to crops and more rain is forecast for next week and flooding has given concern for risk of pests.

And Brazil, which is the world’s second largest soya producer is expected to harvest record crops and beat last year’s crop of 96.2m tonnes to reach a total of around 101m tonnes. Argentina is looking to produce around 58m tonnes of soya and, combined with the large Brazilian harvest, this is adding to an already large global tonnage and oversupplied global market place.