Wednesday, February 20, 2019

Global grain markets: An information addiction

February 6, 2019 by  
Filed under Crops

The US government shutdown is affecting world trade in grain, says David Eudall.

Just like teenagers with smartphones, global grain and oilseed markets are now addicted to data and fresh information. When this information is taken away, the market reacts as any teenager would if you took away their smartphone, by sulking.

Since the start of the year, we have lost crucial information for both old-crop and new-crop amid a continued, record-breaking government shutdown in the USA. During this time, the hugely influential US futures markets have drifted sideways with contrasting news stories failing to give a clear direction.

This lack of information is thus affecting the global grain trade in a number of ways.

US wheat exports

From an old-crop perspective, the US – and to an extent EU – market has been waiting for a slow-down in Russian exports and therefore a switch in demand to US – and potentially EU – origins. Traders had been expecting that this would provide upwards momentum to wheat markets at a time when the northern hemisphere crop is in dormancy and is usually placid.

However, we have seen Russian exports continue to win Egyptian tenders at the expense of the US. Reports out of Russia over the last month have increased 2018/19 wheat exports to 37Mt from previous forecasts of 35Mt. We have seen a lot of rumour and counter-rumour from Russia before regarding export levels and potential export curbs, so the trade take this bullish export sentiment with a pinch of salt.

But the question remains, how much has the US exported? What are the future prospects? And how much business is yet to be done?

Without the clarity of the weekly US export sales (which are a confirmed, specific tonnage of actual trade and haven’t been updated since 20th December) the global marketplace is lacking a key piece of information.

Expectations of rising prices have not been realised and for the short-term it is difficult to argue why they should gain significantly, without any fresh information to inject some volatility.

The wheat markets feels in a state of drift, being trapped between Russian exports continuing strength and the want for US exports to increase, but without any official data to show this.

USDA data releases

Since the start of the government shutdown, we have missed US weekly export sales, US quarterly stocks report, US winter wheat seedings report and the World Agricultural Supply and Demand Estimates (WASDE).

The risk of not having these reports is that the market continues to trade with little “true” information from which to trade. At this moment in time, misinformation and misinterpretation are the biggest risks.

This doesn’t mean the market is doing the “wrong” thing, or that prices are being manipulated. This is more a matter of a fog descending onto the market. While we still know events are happening (the US is still exporting wheat) we can’t clarify and quantify to give confident opinions based on fact.

However, we are seeing other data released into the global market that holds value for all participants. Last week (Thursday 17th Jan), French analysts Stratégie Grains forecast 2019 EU soft wheat production 15% higher year-on-year at 146.4Mt. Such a supply rebound will have a negative impact on price expectations around the EU.

Where do we go next?

It’s difficult to define a specific monetary impact upon markets stemming from the shutdown. However, the lack of information sets a dangerous precedent and highlights the ever growing consolidation of available, clear & impartial information in the global marketplace.

It also highlights the stark reliance upon USDA data by the global marketplace & the imbalance of freely available information. Global trading houses hold a huge portion of market information, this is a commercial advantage and so make no commercial gain from filtering this information to other supply chain participants.

Luckily, we are not at a time when crop development in the Northern Hemisphere is at a critical stage.  Yet depending on when the data is released, and what this data tells us, we may see a price reaction which has been bottled up since prior to the government shutdown.

From a UK perspective, we have seen May-19 futures move lower recenty as sterling strengthened against both the euro and US dollar.  We shouldn’t lose sight of the importance of having a sterling denominated futures market that can interpret and transform global market trends into domestic cash prices.

However, our London feed wheat futures are still a follower of the global market and will react to any global price moves accordingly. Without the clarity of global information being freely available, the ability for supply chains to make informed decisions is diminished but not entirely ended.

We at AHDB will endeavour to clear the fog by collating all of the key available information to offer an opinion on the direction of grain prices. Our Weekly Market Report is released every Monday to identify the ongoing trends and potential impact on prices.

David Eudall is head of MS Arable at AHDB Market Intelligence. To get in touch, call 02476 478873 or email david.eudall@ahdb.org.uk.

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