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Lack of moisture added stress to emerging crops, says AHDB

Staff Writer |
Weather has continued to be the main driver in grain markets over the last month. New crop UK feed wheat futures have surged off the back of crop concerns to a new contract high, closing at £158.25/t on Friday 25 May.

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The drought in the key growing wheat regions in the U.S. has continued into this month.

The situation is unlikely to change in the short term; data from the U.S. National Oceanic and Atmospheric Administration is suggesting that rainfall is unlikely in the next two weeks (until start of June).

As a result, U.S. wheat futures have risen in value due to the added concerns for the already stressed crop.

The outlook for rainfall for the crop growing regions of Western Australia has increased the chance of a drier than average during May to July, according to the Australian Bureau of Meteorology.

The region produces almost half the country’s wheat crop and, over March and April, received just 27 per cent of its average rainfall.

The lack of moisture has caused issues with winter wheat and barley planting and added stress to the emerging crops, which could pose a risk to yields. This has also contributed upwards pressure on prices.

Following the delays to spring planting across of much of Europe, crop conditions have improved for the majority of soft wheat and winter barley crops, according to Strategies Grains. Crop yield potential is now looking more promising in Spain, France and Italy, helping to weaken European prices.

Overall EU rapeseed yields are now pegged at 3.19t/ha, 0.09t/ha below the five-year average, according to the latest MARS crop bulletin from the EU commission. Adverse weather has hampered the development of the crop in several of the key producing countries, including Germany, Poland and to some extent France.

New crop Paris rapeseed futures (Nov-18) have rallied off the back of the concerns, to close at €363.75/t on 22 May, the highest price since November 2017.

The forecast for the 2017/18 Argentinian soyabean crop has been revised downwards to 36Mt, 2Mt lower than last month’s forecast, according to the Buenos Aires Grain Exchange.

The combination of drought early in the year followed by rainfall during harvest has devastated the crop, with 1.2Mha estimated to have been lost. Currently, 46% of the late soyabean crop has been harvested, with 90% of the remaining crop rated as poor/very poor.

The US and China agreed to suspend the implementation of tariffs that were due to come into force later this month.

It was announced on 20 May that the list of goods with prospective tariff increases, which includes soyabeans, has been put on hold while a deal is negotiated between the two parties.

The Euro has slipped against the dollar to the lowest level since November 2017. On 28 May, the Euro was at €1=$1.164.

The weaker Euro against the dollar is a positive factor for European export chances to US dollar market nations. However, for the UK, this increases competition for export markets.

Meanwhile, the dollar has been strengthening against sterling during the month. A weaker pound means UK prices, in the context of global exports (traded in US dollars), will be price competitive, but means that imports (in US dollars) are more expensive.

The value of the Brazilian real (R$) has tumbled in recent weeks. On 21 May, the real was worth R$1=$0.269, its weakest level since March 2016.

The weakness of the real relative to the US dollar makes Brazilian products, such as soyabeans, more attractive in the export market.

Currently, the cost of exports of Brazilian soya to China are reportedly $15-20 per tonne under shipments of those from a US origin.

The USDA has forecast Brazil to export a record of 73.3 million tonnes of soyabean this season (2017/18).

Furthermore, the news agency Reuters reports that the exports of Brazilian soyabeans could continue beyond their normal marketing period, drifting into the US selling season.

The prospect of Brazilian supplies encroaching on the beginning of the US 2018/19 soya export season could well pressure U.S. oilseed prices.

This in turn may feed through into global oilseeds markets given that US prices are viewed as a global benchmark, including for the domestic prices for soyabean/meal.

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