It has been an unusually dry Spring in the UK, and this is also true of mainland Europe where it is thought that rainfall is 50% less than average.

More Spring wheat has been planted in the UK this year, as farmers try new strategies to cope with Blackgrass. Consequently Spring-planted wheat needs a drink, and with similar weather in Western Europe, there is some concern about fledgling crop conditions (UK, France, Germany & Spain).

To add to the general concern, apart from the precarious state of UK old crop wheat stocks this year, French wheat ending stocks have been reduced from 3mt to 2.6mt mainly due to a smaller crop last year (25.7mt instead of 26mt, compared to 41mt in 2015). On the plus side, the big global wheat exporters (US, Australia, Russia) have plenty of wheat to sell, and have sufficient to supply Europe if necessary. And there appears to be big crops coming this year.

Russia estimates it will harvest 110mt of wheat later this year, as winter wheat wakes up from its dormancy, but here too rain is needed. Ukrainian farmers have planted over 2m ha with Spring wheat with about another 10% left to plant. They also intend to plant 4.4m ha with maize, and 2m ha of soya. UK May wheat futures closed at £145.50/t, still close to the £148.00/t average since January, but lower through to stronger currency on the back of THAT announcement this week.

Allegedly, Brazilian farmers are not keen to sell their newly-harvested soya, prices are low partly because of a record crop, so some are holding out for better returns. The Brazilian unit weight for soya is a 60kg bag, and since June the price of a bag has fallen 30% to Real 64. [=$20.35/2.2046 bushels, = $9.23/b compared with US prices at $9.48/bushel]. At the end of March farmers had sold 50% of their harvest (5-year average 63%), so the lowest sales for seven years. Brazil is expected to produce 110mt soya and 92mt maize, of which it will keep/use 50mt and 55mt respectively with the remainder (a total of 100mt in theory) being available for export.

The hoarding of raw materials by farmers is a likely scenario in an era of low prices caused by surplus raw materials, but does not suit a government that is significantly reliant on export taxes; thus the government is likely to force the issue. Rain on the Argentinean plains has slowed harvesting (maize & soya), and some of the crop has been lost to flooding, but they are still expected to put 56mt of soya and 37mt maize in the barn this year.

In the UK, GM soya is about £290 ex-port, significantly aided by currency, as Sterling is at the best rate since October last year. Maybe we could hold Elections every month? Although China believes it will need 86.5mt soya this year, it intends to plant 8% more soya this year (to the detriment of maize), as it tries to slim down its 250-300mt stockpile of maize.

As we mentioned last week, the funds have been extremely active in recent weeks; in the 7 weeks to 11th April the funds sold 14mt wheat to leave them 18mt net short, 31mt maize to leave them 20mt net short and sold 25mt soya to leave them 4mt net short. This amply reflects the huge global surplus, and the fact that recent rains in the US have taken some of the risk off the table. In the past, the funds have tended to ignore huge carry-out stocks and focus entirely on the new crop, so it will be interesting to watch what happens this coming year. The problem with the funds being 42mt net short of our commodities, is that they will have to buy them back at some stage, possibly all together if fear hits. With a surplus of cereals and soya in the barn, the global focus is on the weather for new crop, the potential for global ‘events’ (eg Korea), and fund positions.

The chain-saw drone! Hitchcock would have loved it. Finally brought down by a simple balloon. In the First & Second World Wars, barrage balloons were used to defend against enemy aircraft.

It seems that some old solutions still work against new technology.

Regards,

Paul Poornan & Martin Humphrey