“A lot of the buyers we advise have, fortunately, already insured around 30 to 40% of their volume requirements for 2017/2018. They took on that cover on the basis of projected volatility in grain markets arising out of uncertainty over how Brexit negotiations will play out, but also to offset the risk from adverse weather related events on planting and harvesting this year,” said Benjamin Bodart, director of UK headquartered, CRM AgriCommodities.
“The election was a disaster for Theresa May, who obviously wanted a strong majority. The fall in sterling against the dollar and the euro could be supportive of domestic grain prices in the short term, but could make UK imports more costly,” he continued.
Sterling dropped around 1.5% last Friday (June 9 2017) and touched its lowest against the US dollar since the UK snap election announcement (April 18 2017) whilst reaching its lowest since mid-January of this year against the single currency. Sterling continues to lose ground today.
“Of course, politically, it is a different story in France, where President Macron appears to have secured a majority in the legislative assembly elections at the weekend. That said, French farmers worry the recovery in the euro against the US dollar will make their grain less competitive on the global market,” he said.
Emerging weather concerns
He told us with emerging weather concerns in the US as well as in major grain producing/exporting countries, there could be a reversal in the trend of low feed costs over the past few years. “It may not be a good news story for livestock producers,” he added.
With a combination of hot and dry conditions in key states of North Dakota and South Dakota, crop ratings for US spring wheat dropped by 7 points last week, the lowest for this time of the year since 2002. As a result, the front-month Minneapolis spring wheat futures exchange traded above the $6/bu mark for the first time in nearly two years, said CRM.
Despite improving conditions, the US corn market was also on the rise last week with soil moisture across the Midwest rapidly declining.
In Australia, a dry spell is also starting to threaten the crops that have recently been planted, with farmers delaying fieldwork whilst waiting for rainfall.
“There are unusually dry conditions in the eastern and western part of Australia. A similar dry pattern has been observed in Eastern Europe.”
“While there are plenty of cereals, plenty of stocks around, there could be a depletion of reserves in top exporting grain markets. China is where most of the increase is expected in grain inventories this year, and it is not prepared to export wheat.
“We have seen tenders coming from Egypt, Algeria, Saudi Arabia and other importing countries already, booking wheat shipments for the July and August period. If we see any further hike in demand, the wheat supply situation could get quite tight in Europe.”
Europe is hungry for rapeseed as well: “There is a gap in the amount of rapeseed needed for crushing, with yearly imports of around 4 to 4.2m tons required. Europe can source from Ukraine where there was a good campaign, but it also relies heavily on Australia and Canada for such oilseeds. We could see less rapeseed production in Australia due to the dryness there, while in Canada, rapeseed planting was affected by exceptionally wet and cold weather.”
The market, he added, still needs a bit more time to assess the impact of the below freezing temperatures in Northeastern France and in Germany in April on local rapeseed production.
Also to note, said Bodart, is the fact that Spain, which has had a bad crop year due to drought, typically relies on France for such supplies. “However, we have received negative reports about the winter barley crop in the south-west of France, in terms of yield potential due to the frost and the cold spell from a few months ago as well as in terms of the mycotoxin load due to the recent rain. Spain might have to look elsewhere in that regard.”
All the fundamentals point to higher crop prices, concluded the analyst.