It maybe the end of the beginning

Writers Posted 31/05/19
Oilseed rape remains too dangerous to sell forward.

Last Friday 10 May, we had one of the most bearish USDA reports ever, seemingly forecasting global increases in wheat, barley, maize and soya, with increased carry out stocks at June 2020.

The one caveat in this bearishness was that the USA maize crop would achieve its forecast so long as it was planted on time and in good order. Well the way the weather forecast is going in the main maize growing states that is not going to happen.

The last optimum planting data for USA maize is today 20 May – it has a short growing cycle of four months – after that time yield potential will diminish. Currently the major maize growing state of Illinois is only 11% planted compared to 82% this time last year! So you can do the maths.

The trade are already talking of the failed planting area equating to anything from four to six million acres or 29 to 43 million tonnes. Add to that the ‘preventative planting’ scheme, which kicks in on 1 June, (it’s crop insurance that they can claim on up to 40% of the unplanted crop values) and all of a sudden, the big international hedge funds – who have record short positions on Chicago maize futures – are not so comfortable anymore! The funds have an all time record short position of 296,000 maize contracts x 127 mt, = 37,592,000 million tonnes on the Chicago futures market, which is really chunky. At least we have something other than the Trump/Chinese tariff trade war to consider for a change. Sorry to quote Churchill again, but this “may not be the end,” it “may not be the beginning of the end,” but it maybe the end of the beginning, for now anyway.

Barley on the other hand remains ‘under the cosh’ for now. Swine flu has decimated the Chinese pig herd reducing their domestic consumption of barley, soya and maize, while this is bearish short term, the Chinese demand for pig meat won’t diminish in the world balance sheet, and will move to another pork production country, like Russia, Korea, Vietnam, Poland, they in turn will still require the barley, maize, soya to rear the pigs. On a more positive note for UK barley, now the Brexit deadline has been extended to 31 October, I have been able to sell both old and new crop malting barley cargos to our usual supply agreement maltster partners in Germany and the low countries. Very beneficial rain has now fallen in most parts of the Northern and Western Europe, improving the winter and spring barley prospects.

So with a potential UK surplus of about 500,000 mt of malting barley, it’s important to use this window, to at least start to get the much needed export programme in place. As it happens, because of the poor forward values of wheat and feed barley, spring malting barley has been the more attractive sale, to lock in margin.

Oilseed rape remains too dangerous to sell forward. Old crop wheat and barley has continued to drift, some long holders have ‘baled out’ as they see the poor new crop prices, and fear the usual ‘coming together’ of old and new crop values, expecting the old will fall to new crop prices. That’s probably the case with barley, but there’s still time for a spike in old crop wheat late on, like last year. A big underestimated factor affecting old crop values, is the amount of maize the UK has imported, its about two million tonnes so far, with more to come. That’s displaced wheat and barley in compound feed. So the only real little bullish story is about USA maize, that may give us a two to three week window into June to make some better wheat sales, for sure, if all the short hedge funds head for the exit door – and start panic buying back their futures – the forward market will spike, and we need to take that opportunity, as the world outlook for new crop wheat remains bearish for now.


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