The euro has recovered quite a lot in recent weeks, hitting $1.20 for the first time since January 2015 this week (29 August). The implications are that European origin grain is less competitive on the global market, Benjamin Bodart, director, CRM AgriCommodities, told FeedNavigator.
The macro economic impact of currency developments on grain markets can be significant. “And recovery in the euro looks like a trend that is likely to continue,” he added.
On the other side of the Atlantic, feed compounders in the US are using more feed wheat in their rations, simply due to a huge reduction in the price differential between corn and wheat on that market.
“The spread between the two commodities is much lower. In July this year, wheat was coming in at $60/T above corn; the gap dropped below $30/T last week.
Corn, soybean and wheat futures fell after the USDA’s WASDE report for August put domestic supplies of all three crops above market expectations, with global wheat supplies already bolstered by predictions of a record Russian harvest - likely to be above 80m Mt.
“The market had been expecting a significant reduction in corn yield estimates and while the USDA adjusted the yield lower, it was not as much as had the trade had anticipated.”
World wheat prices have seen significant tumbles, with Europe not immune to that pressure, said Bodart. “We are seeing new contract lows. Since July 5, European wheat prices have weakened by as much as €30 per ton. French farmers are losing money, with their production costs coming in higher than income.”
Good news for feed compounders though. While grain prices could go lower, CRM is advising its feed industry clients to take as much cover as possible now, to fix purchases and take advantage of the existing bearish market. “There is no reason for prices to go through the roof, but we can’t be complacent about winter wheat planting developments.”
There are risks from the Southern Hemisphere. Australia’s wheat crop is already stressed from dry weather conditions, with rains needed there, while wheat plantings in Argentina look set to be smaller than last year due to recent flooding, he said.
In terms of rapeseed, the analyst said the market has been trading sideways for a while now.
“There have been mixed results in Europe, the rapeseed harvest in France and the UK has been positive, but less so in Germany, which experience summer rains.”
The outlook is somewhat bearish for soybean meal prices, he added.
Trump’s decision to tax biofuel imports from Indonesia and Argentina means more of the US soybean is to be crushed for fulfilling domestic soybean oil demand, which has had the next effect of lowering soymeal prices in that market, said Bodart.
The policy move followed the surprising estimates in this month’s WASDE increasing the US national average soybean yield to 49.4 bu per acre, said the analyst.
Meanwhile canola yields in Canada are better than expected, given the drought-related concern earlier in the season, said Bodart.