Wheat Flags
Influence on wheat prices
30/03/2020
Markets remain volatile and difficult to predict with undoubtable damage being done to economies around the world with an increasing number of countries on lockdown due to Covid-19.
Grain markets initially found some support at the start of last week with a sharp rebound in prices. This was largely as a result of the demand created by panic buying but was also fuelled by the prospect of a change to Russian export quotas to protect domestic food supply.
Although the mention of export quotas in Russia will always stir markets and have the potential to spike prices, the reality of the headline is of less significance than it seems. As ever with Russian news the detail was missing and whilst a limit of 7Mmt of exports from now until June has been imposed, this is more or less in line with what the trade would have expected regardless of any quota. Therefore, on the face of it, the actual impact is relatively immaterial. Ukraine has also followed Russia but instead by banning flour exports for 15 days.
Another reason for the initial rise in US markets was due to currency movements. The US Dollar weakened significantly early in the week and served as a stark reminder as to how much the virus will interrupt the global economy. US Jobless claims were the catalyst for the move and forex traders were clearly disappointed with the number having since sold the USD in volume. This then made US export levels look more competitive than before and helped US futures markets to gain value.
This rally in grain prices, however, was short lived and the markets have started to drift lower over the past few days. Demand hasn’t been helped by the announcement that the US would shut 15% of its ethanol production down with a further reduction expected.
In the UK, currency has been a large contributor to the drop in prices with the Pound firming significantly against the Euro and Dollar. Also, with the tighter lockdown controls and restrictions at supermarkets, the increased demand from panic buying has waned.
Coronavirus headlines remain a constant with demand reduction a key concern. Globally, weather headlines remain very much in the background for now. For the UK, however, somewhat ironically, we now could do with some rain. Having got much of the spring crop planted now rains are needed to get the crops off to a good start. There is some forecast in the coming 14 days which will should get the spring crops going in better condition to their winter counterparts.