11 July 2018
New crop (Nov-18) UK wheat futures prices gained nearly £9.00/t last week and were at the highest level for this stage in the season since 2012.
Prices were pushed up by continued concern for global grain supply in 2018/19, with both the International Grains Council (IGC) and UN’s FAO sharply reducing their forecasts. The escalation of US/China trade tensions on Friday (6 July) remains in the background and could put pressure on prices this week, or cap rises, depending on what other news about crop conditions comes forward.
Both the IGC and FAO made sharp reductions to their forecasts of global grain production in 2018/19 last week. The IGC cuts its forecast of total grain output by 12Mt to 2,077Mt, while the FAO cut its projection by 24Mt to 2,075Mt. Adverse weather, mainly hot, dry conditions, in the EU and Russia was blamed. Demand is now expected to exceed production by 54Mt – 57Mt in 2018/19, a much greater margin than previously expected, which means a steeper draw-down in global stocks.
German grain production could fall to its lowest level since 2007 according to farm lobby association, DBV. The fall in output partly reflects recent hot and dry weather, especially in north and eastern Germany, though smaller planted areas will have contributed. If confirmed, this would likely reduce German export availability in 2018/19. Germany accounted for 26% of UK wheat imports between 2012/13 and 2016/17 (HMRC).
The GB wheat area for harvest 2018 is 2% smaller than that for 2017 according to AHDB’s Planting and Variety Survey. With the 2017/18 UK wheat end season stocks estimated to be the lowest since 2013/14, a lower area means yields need to be above the five year average for domestic wheat supply to increase in 2018/19. Given the current dry conditions, and the potential impact on yields if continued, this will be unlikely – meaning that UK prices could again need to remain above global levels.
Results from the survey also estimate that English & Scottish oilseed rape area has increased by 9% to 608Kha in 2018 compared to last year. However, this is largely a reflection of poor planting conditions in autumn 2016, with the 2018 area still 19% below record GB oilseed rape area in 2012.
Oilseeds markets rose last week. Following weeks of market uncertainty, tariffs threatened by both US and China were imposed on 6 July. Chicago soyabean futures (Nov-18) reacted bullishly to the news after the anticipated impact of tariffs had previously been factored in. In Europe, concerns over the impact of unfavourable weather on rapeseed yields have strengthened markets.
Following prolonged hot and dry weather across Europe, Oil World have followed Strategie Grains and reduced its rapeseed production estimate to 20.6Mt in 2018, a 5% decline from month earlier levels (www.Oilworld.biz). In the EU’s second largest rapeseed producer, Germany, farming association (DBV) revised down its winter rapeseed production estimate by 0.5Mt year-on-year to 3.7Mt in 2018.