Markets remain at the mercy of weather and harvest outcomes
Whilst the long-term impact of Brexit weighs heavy on the minds of many industry commentators, when it comes to grain price prospects over the harvest period, supply, demand, stocks and weather will still determine the market, says Nigel Britland of Nidera UK’s Yorkshire-based grain trading office.
“Despite current UK political volatility, grain prices will continue to be driven by world events with weather and crop production being the important factors in the coming weeks.”
“That’s not to say that Brexit has not had an impact. The weaker Pound has certainly been beneficial for UK markets by making our prices more competitive in Euro and Dollar terms. This has produced some much needed pre-harvest export sales but prospects for future grain prices now depend on a number of possible developments as the combines roll.”
The first of these are concerns that ‘La Nina’ weather patterns could cause above average temperatures building through late summer in the US with the potential to impact corn and soybean production, he says.
“Traders have been watching forward forecasts for any signs of extreme heat developing as this could affect these crops and give wheat a lift. But, so far, ‘La Nina’ has not been as strong as initially feared and US weather has been relatively benign for developing crops.”
The second key area is the condition of the European harvest, he adds.
“This centres around North West Europe – particularly France and some parts of Germany and Poland. Prolonged heavy rains during key growing stages meant French crops fared the worst with considerably lower yields and quality being reported.”
“Test weights and yields on French wheat and barley are very poor with estimates for French wheat production being slashed to below 30Mmt from pre harvest estimates of 38Mmt. Although not suffering to the same extent, Germany is not faring particularly well either.”
In contrast to Western Europe, the Black Sea region has benefited from favourable conditions during the final crop finishing stages with the potential for bumper production, Nigel Britland points out.
“The Russian wheat harvest is progressing well with strong yields implying a huge crop of close to 70Mmt. If realised, Russia could have record levels of exportable surplus which would go a long way to alleviating the supply issues from Europe.”
“In the UK, we have suffered similar problems to France on winter barley and rapeseed with low yields. This led many market participants to speculate on the potential for wheat prospects with some fearing further yield and quality issues.”
The reality is proving to be quite the opposite with initial cuts yielding and testing well. As wheat harvest picks up, we hope that this trend continues, he says.
“Lower global grain quality means more feed wheat competing with UK exports, although higher quality UK grain could present opportunities in markets traditionally dominated by countries like France.”
The current volatility in Sterling could also provide the UK with some good export opportunities in the short to mid term, Nigel concludes.
“Globally, the supply situation for wheat and corn is strong, but with tight US soyabean supply and demand and the problems in Europe, any weather problem could still cause volatility. Any rallies, should still be viewed as selling opportunities – particularly in wheat.”