Mel's Market Report November 2018
Sterling remained fairly stable during October as Brexit negotiations appeared to be progressing reasonably well. As we started November cracks appeared in UK political togetherness regarding the Government proposals. Combine this with a strengthening Dollar and we could well see volatility ahead.
While the present market environment appears to be more stable than was predicted a month ago the future is still uncertain and could still tip one way or the other!
UK butter and cream prices have eased back. Large manufactures are presently keeping out of the market hoping for further reductions. Cheese prices remain resilient and SMP prices are now increasing as production is significantly down on last years levels.
The EU sugar market, as well as the world market, has transformed a lot over the last few weeks.
Due to the disappointing harvest of 18/19, the availability of EU sugar for the season is greatly reduced. In recent weeks, the predicted 18/19 harvest numbers have been downgraded on several occasions.
The Dutch (Suiker Unie) initial harvest in 18/19 was forecast to be 1.32 million tonnes with numbers from last week showing a decline and the expectation of the harvest 18/19 now falling to 1.12 million tonnes. The EU Commission also reported a downward revision of the EU harvest figures to 18.6 million tonnes (in September the Commission still expected 19.1 million tonnes).
This, along with the fact that previous market prices were well below cost, as well as the recent reporting on the reduction of the acreage in the upcoming 19/20 season has now ensured that spot sugar prices have increased significantly. Furthermore, global sugar production is showing a similar trend and it looks like the originally forecasted surplus for the 18/19 season has now completely disappeared.
UK maize imports reached 544Kt this season to date (Jul-Sep 2018), according to the latest data. This is the fastest import pace in recent years and is significantly above the five-year average (2013-17) of 370Kt for these months.
Higher imports are likely a result of increased domestic demand for maize. In the first three months of this season we’ve seen increasing inclusions of maize in animal feed production. Last week, the cost of imported maize was lower than the spot UK average price for feed wheat. Should this price discount be maintained throughout the season we are likely to see domestic demand for maize in animal feed remain strong. However, if the price gap narrows then we may see domestic demand and maize imports drop as a result.
Wheat futures were up by 2.8% . The rise, which recovered some of the decline over the previous week, was partly due to continued concerns around the state of the Argentinian wheat crop. Recent frosts over parts of Buenos Aires have the potential to impact crops during grain-filling stages and may lead to a reduction from current production estimates.
OILS AND FATS
Rapeseed Oil - moved up in previous weeks but the gains in the market were marginal. There are some logistical issues that are currently supporting the market. Low water levels on the Rhine, the lowest in almost a decade, creating shipments to stall and floating stock hard to come by. This in turn is leading to a drop in the crush figures. News regarding next year’s crop still does not look good which backs the market. It is anticipated that the EU crop will only be around 6 million hectares. This is compared to a crop size of closer to 7 million hectares this year. With continued biodiesel demand in the market we can be expect the carryover to be unsubstantial, this supply issue could make things tight again as we head into next year.
Palm Oil - exports continued to fall which was to be expected after buyers took advantage of zero export tax in September. This reflected in October with exports down in the region of 30%. Palm Oil is now trading at a discount to Soybean Oil as demand still lacks momentum.
Turkish Sultanas/Raisins - fruit prices are rising daily as a result of smaller crops, due to various poor weather occurrences, and currency volatility in Turkey. Sultana prices rose by around 35% during October and early November and with the Turkish Lira now gaining strength, it is likely that the market will continue to firm.
Currants - with no carry over of stock from last year’s crop and another poor yield Greek packers have stopped offering Currants with no indication on when they will become available again. It looks like we will experience difficulties in keeping continuity of Greek supply so will seek alternative supply from South Africa/Australia during Q1.