BACK to normal after the festive season and this week the weather took its chance to rub salt in the wounds of the post festive blues, with high winds, snow and ice.
But, it’s not just here that the weather has been playing up in recent weeks. Eastern Europe needed snow cover to protect its winter sown crops from recent very cold conditions and, in parts of the US plains, cold and dry conditions are also giving cause for concern.
Oklahoma has been one of the worst affected, with just 25% of the state’s crop rated as in ‘good/excellent’ condition, compared to 53% in November and 77% a year earlier and, in Kansas, just 44% of the wheat crop is ‘good/excellent’, down from 52% previously due to temperatures three to five degrees below normal.
Due to this fall in crop conditions across many of the top US growing states, cereal markets have firmed as the icy blast led to concern for the health of the planted winter wheat crops.
However, US market traders are expecting wheat prices to remain under pressure in 2016-17 after another large global harvest and bigger availability of stocks for export. As a result there’s a lower US planted area, down 5% year-on-year to 48m acres.
Chicago wheat futures suffered further losses in 2016, falling for a fourth successive year, this time by 13.2% and the lowest contract finish to a calendar year since 2005. Prices were depressed by a fourth successive season of record world production and world stocks are poised to end 2016-17 above 250m tonnes for the first time.
In contrast, UK sterling dominated wheat futures have soared 22%, supported by the devaluation in the pound following the UK’s vote to leave the EU.
The pound has weakened again against the euro as eurozone inflation increased by 1.1% in December driven by price increases for energy, food, alcohol and tobacco. Inflation is creeping closer to 2% and if that happens, this will increase the likelihood of the European Central Bank trimming quantitative easing and potentially raising interest rates.
May, 2017, Liffe feed wheat futures set a new contract high since mid-2014, at the end of last week at £144.25. That was due to a combination of currency movements, early global weather concerns, some significant export demand from Africa and, at a UK level, the continued tight supply from UK farms.
For new crop wheat, November, 2017, wheat futures were up £1.45 to £136.75 and for November, 2018, stand at £139.95.
The EU’s wheat area is expected to be stable at an estimated 27m ha and 2017-18 production is estimated to be 154m tonnes, but end season stocks will still be up 2m tonnes to 13m tonnes.
While the Black Sea region is expected to increase its wheat area, up 2% to 45.3m ha due to an increase in Ukraine’s planted area, Russia’s production is forecast to be down 8% due to lower yields and this would see a 4m tonne reduction in exports.
France seems to be getting rid of its surplus of feed quality wheat, but only slowly. It exported 656,000 tonnes of soft wheat last November – the smallest monthly volume shipped on records going back to January 1999 – bringing its total exports to date to 4.1m tonnes, or 33% lower than last year.
Defra has revised down the 2016 UK barley crop to 6.65m tonnes, compared to 7.37m tonnes in 2015. With the level of demand from brewers, maltsters and distillers unlikely to increase dramatically in 2017-18 and the possibility of a large barley harvest in 2017-18, a strong export campaign could yet be required.
The weakness of sterling and the tightness of nearby wheat supplies has also seen increased buying of feed barley by UK feed compounders and this lifted values above those of the export markets in the UK.
Malting premiums remain at around £20 for old crop and premiums for 2017 new crop are up to around £25. This season will see a record tonnage of at least 500,000 tonnes exported and interest for new crop tonnage from buyers remains good, as the UK is still cheaper than French barley.
Soyabean prices dropped last week as gains due to weather concerns in Argentina were outweighed by slow export demand for US soya. And poor weather there has resulted in a forecast reduction of up to 300,000 ha of oilseed planted area.
The US also had a huge cancellation of close to 1m tonnes that left nett sales at just 87,500 tonnes, whereas markets were expecting sales of 800,000 to 1.2m tonnes.
Ukrainian winter crop figures show that it has the largest year-on-year increase for oilseed rape driven by the increasingly favourable relationship of oilseed to grain prices.
Sunflower seed imports into the EU increased to 540,000 tonnes between July and January, which was up from 360,000 tonnes for the same period last year. Add to that rapeseed imports at 1.39m tonnes, down 17% from last season, and you can see why Ukraine has done this.
Germany also expanded its winter oilseed rape area, in contrast to the reduced areas in France and the UK. Germany is one of Europe’s largest rapeseed growers and initial figures show 1.34m ha of oilseed rape in the ground by the end of November. This is 10,000 ha, or 0.8% higher than in 2016.
The main driver has been lower returns from feed grain crops this past year and Germany is both a major producer and importer of rapeseed for use in its biodiesel industry.
Sunflower oil prices have held below both rapeseed oil and soyabean oil for over four months. In US dollar terms, sunflower oil fell 1% since the start of the season which is not much, but the other two oils have increased by 21% and 13%, respectively.
The increase in rapeseed oil prices is mainly a reflection of the tighter rapeseed supply situation this season as well as support from other vegetable oils.