All eyes are on La Niña and resulting weather in areas of Australia and Argentina which could impact global grain prices if winter crops are hit.
Oilseed prices have taken a blow in response to India’s decision to lift import tariffs on both crude and refined vegetable oils.
And the UK wheat market remains tight, but lower prices could be on the horizon.
What to watch
Russia’s major export expansion continues to weigh on the market.
May 2018 LIFFE wheat futures closed on Thursday, November 23 at £144.05 a tonne, a drop of £0.70 a tonne on the week
Since our last report, the LIFFE exchange has been pressured lower by a combination of global weakness in grain markets and a slightly improved pound.
However, physical prices have showed little change, especially in the pre-Christmas positions, as the supply squeeze plus perceived seasonal logistics continue to support delivered markets.
Official data for the first quarter of 2017-18 (July-September) showed wheat exports down 78% year-on-year, while imports were just slightly higher, reflecting the apparent tightness in the UK balance sheet.
News that one of the major ethanol plants has pulled forward and extended its seasonal shutdown for maintenance will reduce demand, although again, this has exerted little pressure upon spot prices.
The timing of the plant’s reopening, if delayed, may affect the balance sheet, with evidence of more sellers in the deferred positions, although end-users continue to stay absent, expecting lower values.
The UK is not export competitive, but at present it does not need to be.
A major shift in supply (bigger crop) or a drop-off in demand could leave the market open to lower prices in the latter months of the season, although at present, it still remains unclear if the UK needs to move towards export competitiveness, or import parity.
The global grain glut and the supremacy of Russia regarding the wheat exports have continued to keep a lid on grain prices, although some activity from the funds was noticed last Friday when a rising risk of La Niña made the headlines.
The trade is eager to find any fresh bullish news to justify a rally after a prolonged period of low prices, which is likely to lead to a further reduction in the winter wheat planted area.
The rising risk of La Niña, generally translating into wet conditions across the eastern part of Australia and dryness in the core producing provinces of Argentina, could be the catalyst required.
It has reminded speculators that the world has become extremely dependent on the latter origin for soymeal - Argentina accounts for 15% of global production but nearly half of exports.
Although the weather forecast has recently improved in Argentina with a few wet episodes, the most critical period for corn and soybean yield is still ahead of us across South America.
As such, the speculators play a dangerous game holding a record net short position (bearish bet) on futures and options combined for corn, of more than 230,000 lots - equivalent to nearly half EU production.