MARKET WATCH• WEATHER: RAIN FOR THE CORN

BELT, MOISTURE DEFICIT IN CANADA AND AUSTRALIA

• CEREALS: SPRING WHEAT PLANTINGS AND QUALITY DETERIORATION FOR SRW IN SOUTHERN USA

• OILSEED COMPLEX: SOYBEAN ACREAGE IN THE USA, PALM PRODUCTION IN MALAYSIA AND CRUDE OIL PRICES

• TENSION WITH IRAN• DEVELOPMENTS IN THE USA/

CHINA TRADE WAR • GENERAL ELECTION IN UKRAINE

NEWS

WEEKLY TRENDSWheat  Maize Rapeseed Sunflower Barley Meals

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ANALYSIS & COMMENTARYGRAINS ANALYSIS : Wheat prices seem reluctant to show any clear direction, caught between global balance sheets that are generally sluggish (European production is expected to rise sharply in 2019) and ongoing poor weather conditions in the USA.With regard to maize, the weather conditions in the USA are still the main cause for concern among producers. At this stage it is still difficult to measure the impact of these difficult planting conditions in the USA and the final planted acreage. Europe and South America, however, are likely to see bumper production again, which will limit any potential for increase on our continent.

OILSEEDS ANALYSIS : The oils market is being penalised by falling crude oil prices and forecasts of a drop in global demand given the concerns about economic growth. Palm oil remains weak, whilst sunflower could find a little support from falling acreage in the Black Sea basin.Rapeseed prices have changed very little despite a European production level that Agritel analysts are estimating at just 17.3 million tonnes, although canola has been planted in good conditions in Canada. Conditions are rather dry for germination, however, and must be monitored. There is no doubt that Europe will be importing rapeseed mainly from Ukraine and canola from Canada to offset its deficit.

ECONOMIC CLIMATEHIGH VOLATILITY FOR CRUDE OILCrude oil prices are fluctuating greatly at the moment. In terms of bullish factors we have the fall in OPEC’s output (as decided in late 2018) and the strength of the dollar. In terms of bearish factors, however, we once again see the impact of the trade war between the USA and China, and its negative effects on global growth. Numerous analysts believe that this trade war could drive global GDP down by 1%. The result of all this is an increase in crude oil stocks in the USA which are at their highest since July 2017. Over the next few weeks, crude oil prices may therefore fluctuate between $55 and $65/bbl in New York - a volatility rate of almost 20%.

FERTILISERSUREA: INVITATION TO TENDER FROM PAKISTANDemand for urea, thanks mainly to India’s invitation to tender, is underpinning prices. Urea ex Egyptian, Algerian and Arabian Gulf ports was available above the $270/t FOB mark last week. Prices are likely to remain buoyant because of Pakistan’s invitation to tender for 100,000 tonnes for shipment in June.With regard to phosphates, the market is being driven by invitations to tender from Bangladesh and Iran. India’s demand, however, has been curbed by a probable reduction in subsidies to purchase DAP. With regard to potash, European demand has dropped and the high availability in north-west Europe and south-east Asia is driving prices down in these regions.

$16 BILLION FOR US FARMERS Last week, the US government released $16 billion of exceptional aid for US farmers as compensation for the trade war with China. China alone imports 60% of the soybeans traded worldwide, and before the crisis its main source was the USA. Since the crisis between Donald Trump and Xi Jinping, China’s main supplier has been Brazil and US soybean producers have seen their prices collapse. Some of the money raised by US taxes on Chinese imports is therefore being redistributed to farmers. $14.5 billion of this aid will be paid directly to farmers and will be based on the acreage they planted in spring, regardless of the crop. The first payments will be made in late July and the balance before the end of the year.

CHANGES IN FUND POSITIONS ON WTI AND THE EFFECT ON CRUDE OIL PRICES

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GRAINS AND OILSEEDS

MARKET INSIGHTS & TRENDS

N°34 30 / MAY 2019

WEATHER MARKETCereal prices are making solid progress, still against a backdrop of ongoing adverse weather in the USA. Two weeks ago we talked about a possible return of volatility to the markets - this is being confirmed. The situation in the USA is becoming very complicated for farmers who are unable to carry out their spring plantings in the Corn Belt. With maize plantings due to finish soon, perhaps only 60-65% of the acreage has been planted as we approach the end of the month. US producers are therefore facing a difficult choice: plant, despite the potential and already forecast loss of yield, or leave fallow and receive a government indemnity of around $390/acre.This is a very difficult decision for US producers in that they also have to anticipate the future prices of the maize already planted which will be paid at the next harvest in the autumn of 2019. Given the current prices it seems more lucrative for US farmers not to plant and to opt for ‘prevented planting’ payments. Maize prices would have to rise to around $5/bushel for their decision to be reversed. It is against this backdrop that maize prices are moving.The wheat market is also progressing as rain in the USA is partially penalising the spring plantings, but mainly giving rise to concerns about a deterioration in quality for winter wheat whose flowering period is now over. This was the case in western Europe in 2016 when the quality premiums surged because of excessive rainfall. We can therefore see a marked contrast on the markets

between promising production in Europe and concerns in North America. With regard to feed barley, buyer interest may return from China. Almost 100,000ha of maize have already been destroyed by a caterpillar called African armyworm. This parasite could have a major effect on

China’s production and encourage feed manufacturers to switch to a grain that is more competitive in terms of price: feed barley. In conclusion, given all the elements set out above, we are now in a period of weather market, with a return to volatility.

FOCUS ON… MORE IMPORTS OF FRENCH BARLEY IN CHINA?The sharp rise in Chinese maize prices in Dalian, resulting from the damage caused to the maize acreage by African armyworm, has allowed French barley to become competitive for import again. The price spread between milling barley FOB Rouen and local maize stands at nearly $100/t - its widest since February 2016. As China is still behind schedule with its import campaign when compared to last year (only 3.12Mt imported between October and April), the rate towards the end of the campaign must be monitored closely: even though the USDA had revised the import target down because of African swine fever, it is still high at 6.5Mt between now and next September. Even though French barley is in a good position, Ukrainian crop is also competitive on the international scene and must therefore be monitored.

Expiry Closes 28/05/2019 2-Week Variation

Euronext Wheat €/T September-19 184,75 14,25December-19 187,75 13,50

Euronext Maize €/T June-19 163,00 -1,00August-19 171,75 3,25

Chicago Wheat c$/bu July-19 504,75 56,25September-19 512,00 56,00

PRICES OF FEED BARLEY FOB ROUEN AND ODESSA & PRICES OF MAIZE IN DALIAN ($/T)

Maize Dalian ($/t)Feed barley Ukraine FOB Odessa ($/t)

Feed barley France FOB Rouen ($/t)

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MAIZE GRAINGRAINS

RAPESEED PRODUCTION IS DOWN IN EUROPE It is a complicated scenario for soybeans with ongoing uncertainty surrounding the acreage to be planted in the USA for the upcoming campaign. Bad weather is giving rise to concerns about delayed plantings and, ultimately, loss of yield potential if the situation continues. Based on the current hypothesis of a 2.5 million-acre fall in acreage, US production could reach 111 million tonnes in autumn, against 123.7 million last year. Given the US balance sheets, however, availability should remain high for the upcoming campaign as beginning stocks for the 2019/2020 campaign could be 16 million tonnes higher than those of the previous campaign; this is a consequence of the trade war with China which has caused US exports to fall. This contrast between forecasts of a fall in production in the USA and availability that should, however, remain comfortable so as to meet global demand, is causing soybean prices to rise very slightly in Chicago, but without encouraging funds to buy back their net speculative short positions at the moment.With regard to rapeseed, the European balance sheet is going to show a considerable deficit, with production under the 18 million-tonne mark. Agritel’s analysts have an estimate of just 17.3 million tonnes. There is no doubt that Europe will have to call on Canadian and Ukrainian imports for the next campaign. In Canada,

Alberta has finished planting, although around 30% of the acreage remains to be planted in Saskatchewan. Both provinces have a moisture deficit which does not augur well for germination. In western Ukraine, which accounts for the bulk of the production, however, heavy rain is giving rise to concerns about crop losses. Despite

all this, there is not much movement on rapeseed prices which are being penalised by declining crude oil prices and ongoing sluggishness on the palm market.Global biodiesel production is likely to reach a new record this year, although it should be absorbed by increasing demand.

Expiry Closes 28/05/2019 2-Week Variation

Euronext Rapeseed €/T August-19 369,50 8,25November-19 372,25 8,25

Winnipeg Rapeseed C$/T July-19 450,90 8,50November-19 464,20 10,50

Chicago Soya c$/bu July-19 856,00 24,50August-19 862,75 24,75

FOCUS ON… AN INCREASE IN THE OLEIC SUNFLOWER ACREAGE IN UKRAINE?The prices of oleic sunflower oil are still trading with a net premium when compared to standard sunflower oil. Even though this is mainly a feature of the French market, it is just as pronounced in Ukraine with the price spread now standing at around $365/t - an all-time high. Incidentally, this good premium should encourage Ukrainian producers to increase the proportion of oleic sunflower when compared to classic sunflower for the next campaign. Even though it is difficult at the moment to predict a precise figure for the acreage, the increase could nonetheless be significant, which would not suggest that the premium will be maintained at current levels. This movement could also spread to the European market as most of the EU’s imports of sunflower oil come from Ukraine.

SPREAD BETWEEN OLEIC AND STANDARD SUNFLOWER OILS FOB ODESSA ($/T)

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SUNFLOWEROILSEEDS

TECHNICAL POINTUS MAIZE PLANTING IS BEHIND SCHEDULE. WHAT OPTIONS DO PRODUCERS HAVE?

2019 – ASSURANCE RÉCOLTE MAÏS AUX USADate limite des semis

PROGRESS IS AT AN HISTORIC LOW Rain over the past few weeks in the USA, particularly in the main maize-producing states of the Corn Belt, has delayed fieldwork considerably. 100-200mm of rain have fallen over the last two weeks across large swathes of Illinois, Iowa and Nebraska - these three regions account for over 40% of national production. With the weather models still forecasting rain for the next few days, analysts and market operators are wondering what options are available to producers.

A COMPLEX INSURANCE SYSTEM One of the most common ways for US producers to protect themselves against the vagaries of the weather is prevented plantings insurance. Under this type of insurance taken out with private companies subsidised by the state, producers are partially reimbursed for their costs and lost revenue when it proves impossible to plant. Claims must be submitted after a final planting date set for each county has passed. In more detail, several options are available for US producers:

• TRIGGER PREVENTED PLANTINGS INSURANCE

The first option consists simply of submitting a claim when the producer has been unable to plant before the final date set by the insurer. This automatically triggers payment of an indemnity based on 80% of the reference price multiplied by the county’s historic yield. Nothing can be planted thereafter.

• INSURANCE NOT TRIGGERED AND ANOTHER CROP IS PLANTED (E.G. SOYBEANS)

The second option consists of not planting maize but replacing it with another crop which is planted later, like soybeans. This option is only worthwhile when the sale price of soybeans is higher than the total prevented plantings indemnity for maize combined with the production costs for soybean.

• PLANT THE ORIGINAL CROP AFTER THE PLANTING DATE SET BY THE INSURER

The third option consists of planting maize once the final planting date has passed. In some cases a 25-day extension is granted in which to finalise fieldwork, although the prevented plantings indemnity loses 1% of its value for each additional day.

• TRIGGER THE PREVENTED PLANTINGS INSURANCE FOR MAIZE AND PLANT A SECOND INSURED CROP AFTER THE FINAL PLANTING DATE

Under this option, 35% of the prevented plantings indemnity for maize is paid out. This also involves a reduction in yield to 60% of the average yield over ten years.Farmers therefore have many options open to them, and the first final planting dates have already passed in some states. We must now monitor, very closely, the scale of the acreage declared ‘not planted’, and that planted to soybeans instead of maize. The first indications will appear in the USDA's report for August which will give a clearer idea of a potential reduction in the maize acreage.

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