Weekly Grain Digest - 19/08/2019

The COFCO UK Weekly Digest brings together a wealth of global grain intelligence to summarise this week's market drivers for grains and oilseeds.

Grain

Suprisingly bearish USDA Corn Figures
Strong UK Cereal Production Estimates
Sterling Weakness
Market View:
Grain prices continued to come under pressure this week driven by the curveball thrown in the latest USDA report. A much smaller than expected drop in US corn acres and a shock yield increase resulted in a bigger US crop than previously estimated. Those figures were compounded by a 3Mmt increase in Ukrainian corn production to a new record of 36.5 Mmt.

Although the very negative corn numbers were the main story to come from the USDA report, the wheat figures also weighed on the bearish tone. Global wheat production is still expected to be as much as 38Mmt larger than last season whilst carry out stocks should increase by 10Mmt. As a result, futures markets dropped sharply following the USDA report and have remained under pressure since.

Domestic production echoes that of the rest of the world. Cereal yields are very strong with UK wheat production widely anticipated to be in excess of 15.5Mmt. This means that there is now an even stronger necessity to export wheat but the run down to the 31st October Brexit deadline is getting scarily close. With sterling trading below 1.10 v’s the Euro of late, UK wheat is now at long last export competitive but even if all ports run at full capacity, we’ll still have a significant proportion of the surplus left to ship after the end of October.

As mentioned, sterling is currently helping the UK to be competitive, however, the level of uncertainty around both Brexit and the UK economy is at an all-time high and as such the currency market can only be relied on so much. In the event that a deal is struck with the EU we can expect GBP to firm significantly from recent lows which would be sure to hit domestic prices as we try to remain export competitive to shift our surplus. Opposing that scenario, a no-deal Brexit could lead to a weaker currency but also significant tariffs on agricultural exports.

The current negative market trend is difficult to see past at the moment. There needs to be a major issue in southern hemisphere production to change what is now a very negative tone to the market. Other than dryness in Australia, there aren’t any current issues. For the time being, any hope of a significant rally has been dashed.