The north-south divide continues in the UK, with strong demand in the north attracting the supplies from the south.
Globally, wheat prices are being driven higher due to weather concerns in the US winter wheat belt.
In Europe, it seems likely the European Union wheat export projection is too high and that estimates for EU carryout inventories will increase further.
What to watch
Time will tell which of the conflicting views on the impact of recent wet weather has had in Brazil is correct.
May 2018 London wheat futures closed on Thursday at £142 a tonne, a fall of £0.65 a tonne week on week
Northern tightness and the easy South
The significant divergence in price levels between the north and south continues.
Very strong demand for grains north of the River Humber, in northern England, is attracting supplies from locations further and further south, where supplies are more readily available.
Cash basis levels reflect this anomaly, with Yorkshire feed spot wheat values trading some £6-8 a tonne above nearby London futures. Further south and east, UK basis levels are trading between £0-5 a tonne. Meanwhile, farmers continue to hold back supplies.
According to official data, the volume of wheat sold up to January 25 was 20% less than at the same period last season and 14% less for barley.
Judging by the robust pace of wheat imports during November (154,000 tonnes), UK wheat prices had been trading at import parity levels beforehand.
Since the London-Paris wheat futures spread has narrowed further since Christmas, to only a pound or two discount, we could be due for another large importing month in December.
As evidenced by the strong basis levels, the balance sheet needs it.
Furthermore, the spread between new crop London-Paris is also on the rise as the market begins to anticipate another very tight wheat balance sheet in 2018-19. Currently the spread is valued at around £8 a tonne.
Rupert Somerscales, ODA
Lack of export interest overhangs European wheat markets
After continuing the bearish slant into the new year, which accumulated into a series of consecutive daily lows, the markets have bounced, supported by a dryness concern-based rally in Chicago.
Pressure caused by the euro hitting a multi-year high against the US dollar eased slightly over the past few sessions after US President Donald Trump’s vision for a strong currency provided limited support for the greenback.
Although trading at contract lows, the market has done little to prompt export interest.
Logistics pressure has seen cash levels rise, at a time when Algeria purchased in excess of 500,000 tonnes, and a Saudi boat was nominated to be supplied from France.
Current levels place French wheat almost $20 a tonne above Black Sea supplies, on a comparable spec.
With a similar premium over Argentinian wheat, it remains unclear how the recent Algerian trade will be split between the various origins.
Despite a rise in Black Sea values, due to rising oil prices supporting the rouble, Russian wheat is still cheap into international markets.
(Source – https://www.agrimoney.com/news/grain-and-oilseeds-market-view-from-europe—february-2-51678)
There are only a few large international tenders to complete the marketing year, and the recent rise has effectively killed off any prospect of a major shift in EU shipments.
It seems likely the EU export projection is too high and that EU closing inventories will increase further.
David Woodland, Gleadell
Focus on weather in South America
Oilseed markets are very focused on South American weather.
Conflicting views on the impact which recent wet weather has had in Brazil range from bigger yields to frustrated harvest probably resulting in lower crop numbers. As with all issues of the climatic type only time will tell.
In the US, farmers will be starting to look at gross margin returns between soybeans and corn for the coming planting season.
The calculations should fall in favour of more soybeans and less corn, but with corn yields being so good for so many years it may explain why we still don’t see a major swing.
In Europe, the debate over trade rules and subsidies on biodiesel imports or unsustainable use of palm oil in the sector keeps everyone guessing.
Will the EU be flooded with imports or can barriers to trade be erected again? A topic which need addressing, but just as important, is the long-term demand for diesel in a world which is moving towards electric and hybrid cars.
Rapeseed markets remain under pressure as shipments continue to head to the EU from Australia and the soybeans/rapeseed spread fluctuates mainly through currency moves.
At times like this knowledge of local markets is important and the impact of adequate supply shouldn’t be underestimated.
Cecilia Pryce, Openfield