Market report - 8th August 2018

World Markets

US wheat closed slightly lower yesterday, seeing some profit after the recent strong gains. The US winter wheat harvest was put at 90% complete in this week's crop update and spring harvest 13% cut, with ratings down 4% on last week at 74% good to excellent. Corn ratings were seen to decline by 1% to 71% good to excellent, versus 60% at the same time last year. This shows ratings are still very high but the weather is not ideal at the moment, with hot and dry conditions sending soil moistures lower. This Friday's USDA report will be of interest, with some significant changes expected in light of declining crops in Europe and Australia since their last published numbers and how this will impact export ideas and end stock estimates.

Hot and dry conditions in Canada and the Indian Monsoon seem to be growing issues, but the main focus remains with drought-stricken Australia. The BBC covered a report detailing that the entire State of New South Wales (NSW) is now 100% in drought, having received just 10mm of rain in total throughout July. NSW is responsible for a quarter of Australia's output and neighbouring Queensland, Victoria and much of South Australia are suffering severe drought. In comparison, Argentina has fared much better and there is talk of a higher wheat acreage as high prices encourage farmers to drill.

Matif held its rally yesterday, making a contract high close supported by the French Farm Ministry reducing its wheat forecast by one million tonnes reduction to 35.1 million tonnes reduction. EU exports are running 37% down on last year and will need to end up much lower this season to support domestic demand and maintain stock levels. This is one of the areas that hold interest for Friday's USDA update.

UK Markets

London wheat closed higher yesterday, trading at £200/t for May 19 again before closing at £199.40/t, £1.70 up on the day. This morning £200/t traded again before backing off slightly.

The UK has been seeing very active import trade in the pre-Christmas positions, supported by UK wheat having been at a premium to other origins for some weeks. The UK harvest is progressing rapidly and yield reports are not a disaster. With this added to the active import markets of wheat and corn into UK ports, there could be some realignment of UK pricing to come.

Oilseed rape

A comfortable supply and demand balance sheet for soybeans has prevented oilseed rape values from enjoying the same sharp rallies that cereals have seen. However, over the past week OSR has found support from some of the weather issues around the world.

US soybean ratings have dropped 3% this week to 67% good to excellent due to hot and dry growing conditions. Australia is very dry – the East Coast is said to be suffering the worst drought in living memory, making it likely that their canola crop could see further production cuts. Analysts have indicated a potential production number of 2.9 million tonnes, which would be down from 3.65 million tonnes last season.

Hot and dry weather has also damaged yields in Europe. If these conditions continue, there is a potential threat to rapeseed plantings for the 2019 season too.

In contrast, there are other parts of the world that are helping to balance out these negative factors. Brazilian soybean plantings are forecast to increase by as much as 1.5 million hectares. In Ukraine, the OSR harvest is almost complete with crop estimates at 2.6 million tonnes, up from 2.35 million tonnes last year. Russian OSR yields have also come in better than expected, with the crop estimated at 1.9 million tonnes versus 1.5 million tonnes last year.