Six months on from my last report and the world looks a very different place, back in February no one could have predicted COVID 19 would be as devasting and destructive as it has. As a result demand for most raw materials has been curtailed and remains uncertain going forward.
Political relations continue to be strained between China and the US with many issues causing upset, intellectual property theft, tariffs/trade, sanctions over HK law, sanctions over the treatment of Chinese ethnic minorities, Huawei/national security, South China Sea, Taiwan, restrictions on investments in China and the management of the coronavirus, to mention but a few.
Sterling has gained ground on the dollar in the last few weeks, but this is due more to the weakness of the dollar rather than the strength of the pound, with mounting concerns over the slowing U.S. economy hit by the coronavirus pandemic being the biggest driver.
After one of the worst winter planting seasons on record, the UK wheat crop is forecast to drop from 16MMt last year to an estimated 10/12MMT for this year. It is a similar pattern over the channel with French and German crops estimated to be well down on last year. However global supply looks positive with Russia crop estimate to come in around 78MMT making it the secondlargest on record. The U.S. harvest is about 75% complete on the winter wheat and spring wheat is looking good with favourable weather ahead. Australia has one of its best crops in recent years and will have an extra 10MMT to come to the market over last year.
The UK winter barley harvest is well underway and although both acreage and yield are well down on average the additional spring crop planted because of the wet winter should more than compensate for this loss. With prices of barley trading anywhere between £30 to £40 below wheat it certainly looks the better buy for this year.
World stocks of maize are currently at record levels, with big crops estimated globally and reduced demand for ethanol due to COVID 19. This has resulted in surplus maize flooding the market for this winter season and as per barley looks good value versus wheat trading approximately £20 below wheat delivered to farm.
The U.S. soya crop is currently rated 72% Good/Excellent which is ahead of the fi ve-year average. If the weather remains favourable for the next month this should produce a large crop year. As a result of this, we have soya trading at a good value, being under $300 on the Chicago commodities market. With the recent increase in the value of sterling versus the dollar, this has seen prices for artic tipped loads trading around the £300 mark for winter and next summer. A few notes of caution though, China have begun to increase their purchasing from the U.S. as the South American supply isn’t as readily available, and they try to fulfi l their U.S. trade agreements. It is also rumoured that swine fever is diminishing across China, as the country starts to rebuild its herd this will lead to increased demand going forward. Sterling’s recent improvement, which has helped to reduce soya prices, could be set to diminish as we approach Brexit deadlines.
The UK and European crop are once more down on acreage, and yields thus far do not look great. Much of this year’s supply will need to be imported from the likes of Ukraine to make up the shortfall.
Production problems continue in Asia due to dry weather and labour shortages because of COVID 19. The consequent lack of supply is keeping PK prices in the UK high as well as the vegetable fat products.
Wheat prices remain high and are unlikely to drop too much as a result of our domestic crop, barley and maize both look good buys for the winter when compared to wheat and it is likely most compounders/farmers will look to utilize these two products wherever possible. Soya stocks and crops both look good and as a result, prices have eased back in recent weeks helped by the better value in sterling versus the dollar.However, sterling’s gain could be short-lived as markets start to turn their attention towards the UK political position with Brexit once more set to dominate news headlines.