The US market is unchanged on the week. Support remains intact from declining production prospects in Australia together with the impact of adverse weather on both yield and quality in Argentina and Brazil. However, on the negative side, US exports continue their sluggish tone, with exports running 21% behind last year, against the perceived 14% yearly increase current being projected by the USDA.
European prices are about €1/t higher on the week, although off the weekly highs, as a firmer euro/dollar rate weighs on values. As in the US, exports continue to drag last year, with soft wheat exports to non-EU destinations reported at 5.9mln t, down 24% y/y. Yesterday saw the French farm office slightly reduce its French intra-EU wheat exports by 100,000t, increasing 2018-19 ending stocks by a similar level. Non-EU soft wheat exports were left unchanged at 8.75mln t, of which 2.89mln t had been shipped as of Monday. With key importers seemingly covered into the New Year, the emergence of new crop Argentine wheat poses a threat to achieving this target, as the current pricing structure undercuts French supplies into Algeria.
In the UK, prices are currently trading up £2.50/t on the week, but at present it’s all about Brexit and the turmoil in Westminster as the ‘agreed draft agreement’ is released with implications not just for tariff free access to the EU but also for the value of sterling. Brexit aside, market dynamics continue to portray a bearish fundamental scenario, as wheat imports for the first quarter (July-Sept) were reported at a massive 758,179t, compared with exports at only 79,054t for the same period. EU imports, at 607,658t are already almost half of the level imported through the entire 2017-18 marketing year, with non-EU imports running in line year on year. The UK balance sheet is becoming heavy increasing the need for export competitiveness, especially with the expected fall in domestic requirements due to the closure of the country’s bioethanol plants.
Uncertainty over southern hemisphere production has increased, although US and EU exports remain sluggish. The long-term outlook still points to a slow-down, or stop in Russian exports, and the possible export shift into the EU, US or both. However, until there are signs of this actually happening, it will limit buyers’ hunger to move to a longer position, thus keeping market rallies limited. Meanwhile in the UK, as mentioned above, it’s all about Brexit and its government and currency implications which in the end will impact upon farm levels.