US wheat started the week stronger yesterday, supported by a downgrade to the Australian crop from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and more speculation about possible Russian export restrictions. US exports are currently running 31% down from last year's pace – a restriction to Russian exports would see them pick up more demand and therefore support US wheat values. Tomorrow's USDA report is the next focal point for markets; will they downgrade Australian and Canadian crops in line with other estimates?
There has been more bad news for Australian crops, with the forecast now very dry again for the next two weeks. September is a key month for wheat production and is often a wet month providing plenty of moisture, of which there is no sign of this year. Yesterday, ABARES dropped their production estimate to 19.1 million tonnes from their previous estimate of 21.9 million tonnes and 21.2 million tonnes this time last year. The last USDA estimate was for 22 million tonnes, so it will be interesting to see if they downgrade this in tomorrow's report. The ABARES report showed the driest Jan-August since 1965 in New South Wales, which has seen their production estimate plummet from 5.2 million tonnes to just 2.5 million tonnes.
In South America, soil moistures have also been in decline and rain is now needed to avoid crop losses. However, the forecast is looking more promising. If they get good rain now to replenish soil moistures, it should be in time to reverse any serious crop concerns.
Matif wheat followed the US higher despite Brussels' weekly export report showing a pace lagging 41% behind last year. Russia has been exporting at a fierce pace and, as of 30th August, had shipped 9.6 million tonnes. If this continues, they would reach 25 million tonnes in a few months and this is the level at which export restrictions have been rumoured. They had said that there will not be restrictions, but some comments from the Deputy Prime Minister yesterday seemed to hint that they could be on the cards with domestic supply clearly prioritised. It seems as though the 'will they, won't they' speculation could well continue through to Christmas unless a firm statement is made.
London wheat closed £3.35/t higher yesterday, with most of the gains late in the day as the US started to move.
Sterling has strengthened versus the euro, helped by some Brexit comments from European Chief Negotiator, Michel Barnier that seemed to indicate a deal could be more likely. This, and last week's confirmation that the Vivergo plant is shutting, has weighed heavily on UK wheat markets. With imports coming into UK ports and domestic demand significantly changed without any intake at Vivergo after the end of this month, the domestic situation is quite different to the outlook at the start of harvest. The rally last night and this morning could be a good opportunity for pre-Christmas sellers.
Earlier-than-expected frosts on the Chinese soybean crop raised some concerns and have sent Chinese bean prices higher.
In Australia, ABARES released their latest crop numbers yesterday evening and OSR (canola) was forecast at 2.789 million tonnes (USDA 3.2 million). This is down from last year's 3.669 million tonnes and way below market expectations of 3.15 million tonnes. In addition, Canada dropped production last week to 19.1 million tonnes.
In contrast, the Ministry of Agriculture in France has raised production from 4.6 million tonnes last month to 4.8 million tonnes this month. However, with the problems in Australia and Canada combined with the ongoing issues in Europe, we could see the lowest OSR/canola production number since 2012.
Meanwhile, European conditions for sowing and the newly planted crop continue to be challenging.
The strong rally in the pound over the last three-to-four days has downgraded UK values. There are talks from the EU about a potential Brexit deal but there is not much in the way of clarity as yet.
The China vs. US trade war continues to gather pace, with both sides continuing to ramp up the rhetoric. It doesn't appear that a resolution is imminent.
With a USDA report due tomorrow, it is considered likely that US soybean production will be raised again.