Market Report 4th January 2019
US wheat markets start the year weaker, whilst EU/UK trade continues range bound.
USDA S&D data due for release on the 11th Jan delayed due to the ongoing US budget standoff.
US/China trade talks commencing today will be closely monitored. Latest analysis suggests the sides appear far apart on a number of issues.
Russian Ag Ministry increase total grain export estimate from 38-39mmt to 42mmt. 14mmt of this is intended to ship Jan-June. This would still represent a 50% decline on the pace of the first half of the season.
Latest Brexit vote due to take place on the 15th Jan, with MP’s due to discuss in parliament this week. Regardless of the outcome, the UK remains scheduled to leave the EU on 29th March. Expect sterling volatility to remain a fundamental of London wheat price direction as we advance towards this date.
US index fund rebalancing may provide some selling pressure this week – though an element of this may already have been priced in.
US and EU wheat supplies now competitive relative to Black Sea Origin. US wheat exports currently down 13% y/o/y.
EU commission raise 2018/19 corn production figure by 4.6mmt to 67.5mmt (USDA 60.4mmt).
Brazil Consultant Cordonnier place soybean production estimate at 119mmt, down 2mmt on prev. Suggestion that if poor SA weather persists and soybean markets gain strength into spring, US growers may favour planting soybeans over corn.
WEATHER/CROP DEVELOPMENT
Dry Brazilian conditions remain cause for concern, with the soybean crops in particular under threat.
Wet conditions in Argentina are also raising concerns, though Southern areas appear more dry.
Cold temps forecast for US will be monitored closely for any signs of winterkill.
Similarly FSU and parts of the EU are also due for freezing temperatures – with snow cover in some parts deemed poor.
BOTTOM LINE:
Markets appear finely poised to start the year with the trade seeking clarification on a number of factors.
US/China trade talks this week as well as the status of the current US Government shutdown may hold centre stage, not least as the latter has delayed release of one of the most historically significant USDA reports of the calendar year.
Russian exports were unexpectedly raised by the Gov Ministry before the festive period. Question marks remain as to when, and to what extent, demand will begin to shift to US/EU as Russian exports slow. Moreover, SA weather in particular remains problematic, with concerns too around cold conditions expected in US/EU/FSU.
Clearly Brexit remains the dominant feature domestically, with London wheat direction closely tied to that of Sterling – particularly so given the sluggish physical trade post-holiday period.
In short, although markets begin the year with no strong leaning, volatility this month would appear likely with politics/weather/USDA the key features.