The situation of the raw materials market in May

The situation of the raw materials market in May

On the verge of a great harvest for Spain…  

At this point, it seems that Europe, and Spain in particular, are expecting a very good winter cereal harvest.

It is true that we must be cautious, as some weather incidents may still occur in May and June, but considering the current situation in Russia – one of the world’s main wheat exporters -, France – a major producing country -, Hungary and Romania – with large surpluses – and the United Kingdom, overall estimates on the continent are positive.

The positions of investment funds in the main raw materials continue to be long, and prices are somewhat higher than they should be, considering the global production estimates we discussed.

 CEREALS 

WHEAT AND BARLEY  

The accumulated rains on the Iberian Peninsula since mid-winter and so far this spring, as well as the desired appearance of the sun in the last week, have left the fields looking enviable.

However, the sowing was done unevenly, leaving later plots that need improvement. Rain is forecast for the first week of May, which will undoubtedly be of great help to reach the end of the month in optimal conditions.

This is clearly reflected in the quotations of national old crop barleys and wheats, where operations are already being conducted with prices close to the levels offered for the August/December period.

However, these quotations are still well below the replacement of import prices, as it seems that Europe has not yet wanted to become aggressive – despite this situation we are discussing -, but will probably soon give in, seeking levels similar to those seen last year. After all, world wheat stocks are increasing for the fifth consecutive campaign.

On the contrary, in the USA, the conditions of quality wheats are bad (see Graph 4 and Table 1).

CORN

Regarding corn, there are very few changes compared to last month. Basically, we are waiting for the plantings in the USA during these weeks: excessive cold and moisture deficit in the main producing states have delayed planting.

Now we will see if with current technology – which last year allowed more than 40% to be planted in one week – farmers opt to plant corn or if, on the contrary, they decide to balance more acres, allocating them to soybeans with a more favorable growing cycle.

Soy and Alternative Proteins

It seems that in Argentina a harvest volume of around 38-39 million tons is already assumed. Logically, the harvest is being carried out quickly, having already reached approximately 40% in this country (Figure 1).

As shown in Graph 5, the evolution of shipments in Brazil continues at an important pace, and it is necessary to maintain it to be able to market the large volume harvested in this country throughout the year.

We also highlight the importance that Brazil is already having for supply in China following the situation with the United States government, although it seems that agreements are being reached that do not block their trade balances.

RAPESEED, DDG, and SUNFLOWER  

Alternative proteins such as Rapeseed, DDG, and Sunflower are still regulating their quotations, but they are already very close to their level of incompetence in feed formulation. At least during the May/July period, there will be some price volatility and difficulty in terms of the availability of physical goods in some peninsular ports.

 MAY 2018 FORECASTS

The trend in cereals should be interpreted as bearish, at least for barleys and wheats. Although it seems that in Europe there is still no intention to lower prices for the new harvest, we think that during the month of May we will see wheat prices around €170/ton in storage for the August-December period, with barley following the same line.

Depending on the percentage of surface area allocated to corn planting, we may see some minimal fluctuation in one direction or another.

Proteins, at least until we see the evolution of the soybean crop in the USA during the summer, will remain at high prices.

From July/August, if we are talking about a record harvest again, meal prices could reach €340-350 extractor/ports. We will move on to assess the southern hemisphere plantings again, to determine if they can improve further or not.

The alternative proteins may have better prices once their harvest season approaches:

• August for rapeseed, today with a reverse for that date.
• September for sunflower.
• DDG will depend mainly on trade flows between the USA and China, due to the large production of the former and consumption of the latter.

Information Sources: ZENI, USDA, PAS, ICG, and Eurotrade Agrícola.