Frontrunner

World grain markets have started the new year with sharp gains, led higher by US soybean and corn futures. Prolonged dry weather and a rainfall deficit for developing corn and soybean crops across both Argentina and Brazil are raising concerns that yields will be adversely affected amidst strengthening export demand, particularly from China. Chicago Board of Trade (CBOT) corn and wheat futures rallied to highs this week not seen since 2014 as speculative funds continued to buy and established record-long positions. Price gains for corn futures have reached 50% since the summer.Private estimates already see Brazil and Argentina corn production 10 to 15 million tonnes below the United States Department of Agriculture (USDA) December estimates and, with less corn available and prices rising, demand and values for wheat are rising too. The Argentinian government suspended corn export sales until 1st March 2021 and industrial action by port workers further disrupted trade flows for the world’s third largest corn exporter.

Russia, the world’s leading wheat exporter, officially confirmed it would introduce a €25/t export tax in the new year. The tax will be applied to its 17.5-million-tonne export quota, which begins on the 15th February and runs to the 30th June 2021. Traders are unlikely to exceed the quota in light of the news that tonnage which surpasses this figure will be taxed at 50% of the sales value.Market reaction was initially negative due to concerns that traders may step up their sales and shipments ahead of the introduction of the tax. However, that might prove difficult with reports of delays in obtaining documents from the Russian customs service. Overall, this political interference is bullish for world markets and prices have risen this week; although not for Russian farmers. Analysts have highlighted that there will now be less Russian wheat available to ship this season, cutting estimates from almost 41 million tonnes to less than 38 million tonnes.

World wheat markets posted sharp gains this week, recovering much of the losses they had made since the end of last month. The primary driver for these positive moves was news that Russia may introduce additional measures to control wheat exports. Russia has previously established a quota of 17.5 million tonnes to limit wheat exports between February and June 2021, but so far this has proved to have little impact on its domestic market prices.President Putin criticised officials and market participants over rising prices for essential foodstuffs, such as wheat and flour, which are reported to have reached record levels in Russia. The Russian Prime Minister said measures must be taken to stabilise domestic food prices. Traders may now expect export taxes to be employed at some stage. The mechanism is already in place and could be implemented at any time. Potential for disruption of supplies from Russia, the world's leading wheat exporter, could lead to further volatility in world markets.

US Chicago Board of Trade (CBOT) wheat futures continued to fall this week and by close of business on Thursday were 10% below the 4-year highs they peaked at in October. The increasing size of the Australian, Canadian and Indian wheat crops as well as a proposed increase in Russian export quota combine to signal ample wheat supplies and a bearish feel to markets.The Australian Bureau of Agricultural and Resource Economics (ABARES) increased its official Australian wheat crop estimate to what would be the second highest on record at 31.17 million tonnes. However, some private analysts see the potential for up to 35 million tonnes, which would equal the previous record set four years ago. Australian wheat futures have dropped to a 13-week low, highlighting the need to be competitive in export markets while still facing what is, effectively, a ban from the Chinese market.

In a trading week that was shorter than usual due to Thanksgiving, there has been little fresh wheat news. Instead, markets have been buoyed by China’s continued purchasing of US corn. With another 200,000 tonnes purchased last week, the market continues to predict China’s overall demand. The United States Department of Agriculture (USDA) has estimated it will reach 7.2 million tonnes while other private analysts are estimating that China will tender up to 30 million tones of US corn. Either way, it is creating uncertainty in markets, which is a supportive factor for old crop.

World wheat markets stalled this week with a lack of any fresh bullish features to drive them higher again. US Chicago Board of Trade (CBOT) wheat futures drifted as their winter wheat crop rating made modest improvements following recent rains. 46% of the crop is rated ‘good’ to ‘excellent’ and is up one point on the week. This is still well behind this time last year when 52% of the crop received this rating. 96% of the planned area is planted. Export sales were lower than expected at 192,000 tonnes. Market expectations were for 250,000-500,000 tonnes. This created a lacklustre tone for the market. However, the tight UK wheat supply situation bucked the trend, with London wheat futures setting new contract highs, driven higher by a spell of animal feed compounders taking cover for their forward positions. UK millers, however, remain mostly absent from the market and the prices they offer are heavily discounted to imported supplies. It seems likely this will continue to be the case until the Brexit outcome is established. Meanwhile, ships carrying imported supplies continue to berth at ports around the country.