Jonathan Lane, Gleadell’s trading director, comments on the OSR market

Last night’s USDA report surprised the market with a cut to the forecast 2016 US soybean crop by 1.8mln t compared with average estimates, and 1.5mln t compared to the USDA’s December report.

Surprisingly, USDA left production in Argentina unchanged despite the ongoing weather issues and the potential impact to the crop.

Severe weather in Argentina, ranging from bush fires to flooding, is affecting drilling of second soy crops, and in some areas, those fields that have been drilled have been washed out following six months’ worth of rain falling in the past three weeks!

Private crop estimates are downgrading production as a result, with some observers pegging the crop as low as 50mln t down from 57mln t just four weeks ago. This explains why the USDA’s Argentine production figure was a bit of a surprise.

In Brazil however, things are improving. USDA increased its latest estimates, suggesting a potential record crop of circa 104mln t, up 2mln t from last month’s estimates, and a sharp increase on last season’s 95mln t. An earlier harvest is also starting to affect the US market as more Brazilian soy becomes available much earlier than in previous seasons.

In Europe the story remains the same. We need to import to balance our supply and demand requirements, but the better than expected rapeseed crop in Australia, and subsequent higher availability of imported seed, is beginning to undermine the bullish story. Matif rapeseed prices have rallied to €420 on the Feb17 contract on a couple of occasions, but failed to maintain these levels. Whilst the market is still volatile, it does feel like the upward momentum is starting to stall.

As we have mentioned in previous reports, the UK is expecting to see at least one, and probably two, cargos of Australian seed land in Liverpool in February, alleviating any potential tightness of supply in our domestic market.  

However, the setback that we have seen in the European rapeseed futures market has been offset by a fall in sterling, as the money markets interpreted Teresa May’s comments regarding Brexit as being more hard line than perhaps some were anticipating.

Currency volatility, and the impact of wider economic factors, continue to a have significant impact on UK farm-gate values and, whilst the fundamentals of this market might point toward prices potentially starting to peak, it remains very difficult to call overall market direction.