MARKET WATCH• WEATHER: WEATHER

CONDITIONS IN THE USA, WATER DEFICIT IN AUSTRALIA AND RUSSIA

• CEREALS: MAIZE PLANTINGS AND WHEAT RATINGS IN THE USA

• OILSEED COMPLEX: SOYBEAN PLANTINGS IN THE USA AND CRUDE OIL PRICES

• GEOPOLITICAL TENSION WITH THE USA

• FIRST RESULTS OF EUROPE'S BARLEY HARVEST

NEWS

WEEKLY TRENDSWheat  Maize Rapeseed Sunflower Barley Meals

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ANALYSIS & COMMENTARYGRAINS ANALYSIS : Wheat prices lost a little ground at the beginning of June thanks to weather conditions deemed generally favourable in continental Eu-rope. Caution is still required, however, as weather incidents in the Black Sea generally appear towards the end of the cycle, in June. For maize, the situation is very vague with regard to planting conditions in the USA. Even though fieldwork has finally made some progress, we may not have any real idea of the acreage planted until August. Furthermore, the delayed plantings will obviously lead to delayed maturity although the actual impact of this delay will depend on how early winter arrives. Against this backdrop, options-based cover strategies will be preferred.

OILSEEDS ANALYSIS : Oils prices are still generally on a downward trend, just like crude oil which has fallen sharply. This is because global demand is falling (as a result of the slowdown in economic activity) and stocks are rising. Sunflowers in the Black Sea were, in the end, sown in good conditions.With Europe’s rapeseed harvests due to start, analysts still have very mixed opinions about the production level which is likely to reach 17-18 million tonnes, thus requiring imports. Ukraine and Canada may well be the big winners in terms of supplying the European market which will be facing a large shortfall.

ECONOMIC CLIMATETHE CENTRAL BANKS ARE READY TO ACTIncreasing geopolitical tension is provoking a reaction from the Fed and the ECB. Confirming traders’ recent expecta-tions, Fed chairman Jerome Powell has declared that the US central bank is ready to act and support economic growth if commercial problems threaten the labour market and activity in the USA. The European Central Bank (ECB) has once again highlighted the risks associated with the current tension and with controlled inflation. Mario Draghi has also declared that the ECB is not ruling out the use of interest rates as a tool, even though updated forecasts for growth and inflation are still showing no signs of serious deterioration in economic conditions for the euro area. The behaviour of the Fed and the ECB is therefore causing bond interest rates to fall again amidst the turmoil brought by commercial tension.

FERTILISERSSLIGHT FALL ON PHOSPHATES The latest invitations to tender for urea have driven prices up ex Egyptian and Arabian Gulf ports; they now stand at around $280/t FOB Egypt for the first time since January. The demand for urea is likely to fall given that a smaller US maize acreage is expected. A price decline is envisaged in the medium term, given the fall in demand and the fact that Chinese prices are starting to lose ground. With regard to base fertilisers, the main trade has been generated by India and Bangladesh; Bangladesh has just finalised an invitation to tender for 421,000 tonnes of DAP and 275,000 tonnes of TSP. Demand is still irregular on this market, however, and prices are still falling in Morocco and China.

AFTER CHINA - MEXICO?After taxing Chinese imports, Donald Trump is threatening to impose tariffs on Mexican goods. President Trump is conside-ring this step in order to encourage the Mexican authorities to stem the flow of migrants to the USA.If we look at this a little more closely, the USA would probably have the most to lose in a trade war between the two countries as Mexico is one of the main importers of US maize. Incidentally, note that at the beginning of June Mexico made its first unprecedented purchase of 35,000t of maize from Brazil.Trade wars are therefore becoming more widespread (cf the block on imports of Canadian canola into China). This is already having an effect on global economic growth, and is therefore a bearish factor for demand, including the demand for agricultural commodities.

Rate increase

Rate stabilisation (2.25-2.5)

Rate cut

EXPECTED CHANGES IN THE FED'S BENCHMARK RATE IN %

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GRAINS AND OILSEEDS

MARKET INSIGHTS & TRENDS

N°35 13 / JUNE 2019

AN INCREASE IN VOLATILITYThe cereals market is increasingly uncertain thanks to the huge discrepancy between the situation across the Atlantic and that in Europe. The US wheat situation remains highly uncertain with unprecedented levels of rainfall for HRW and SRW wheat. This has not prevented the USDA from publishing figures showing an increase in the proportion of crops rated good-excellent in early June - this was surprising to say the least. There are concerns that the quality of the US harvest will deteriorate because of mycotoxins. In Europe, even though all is well at the moment, there is some uncertainty in southern Russia where the harvest forecasts are now around the psychological level of 80Mt. Russian prices are therefore rising and the spread between wheat on Euronext and wheat in the Black Sea basin is now particularly narrow for the time of year at around $5/t. Maize is facing an unprecedented situation in the USA where over 30% of the acreage is still to be planted at 2 June. This is giving rise to concerns that 5-10% of the acreage may be abandoned. Another factor to consider is that unless summer weather is exceptionally favourable, yields could also fall by between 5% and over 10% when compared to the average; theoretical production is therefore calculated at 310-350Mt, which is a far cry from the 380Mt given in the USDA’s latest report. Against this backdrop, it would seem that the demand for US maize will need to be rationed by an increase in price (prices are already rising) which would

benefit the wheat market.South America’s bumper harvest, however, will partly offset the fall in US production. By drawing deeply on their stocks, Brazil and Argentina will be able to export 6-7Mt more maize than is currently expected, although this will still not be enough if US production falls by more than 30 million tonnes.

This market is still therefore restless; its primary reference point is the $4.40/bushel threshold on nearby expiry in Chicago. This major resistance level has been the market’s high point for the past five years. An upward breach would therefore signify a real change for the US maize market and the global cereals market as a whole.

FOCUS ON… CHICAGO MAIZE IS SUPPORTING EURONEXT WHEATEven though the correlation between European wheat listed on the Euronext futures market and US maize listed on the Chicago futures market is far from perfect, both markets are tracking each other relatively well. Wheat, acting under the influence of its own fundamentals, may see some isolated surges. When maize is very tight, however, it drives wheat up. Similarly, wheat, when there is a glut, sees its prices sink toward those of maize. These interactions are due to the possible substitution of maize for wheat in animal feed when there are problems with maize production. The narrowest spreads seen between Euronext wheat and Chicago maize over the last ten years have ranged between 0 and +€20/t; this spread is currently over €30/t. This leaves US maize with further room for improvement, but if the

additional increase is over €10/T in Chicago, there is no doubt that maize will become a real supporting factor for Euronext wheat.

Expiry Closes 11/06/2019 2-Week Variation

Euronext Wheat €/T September-19 177,75 -7,00December-19 181,00 -6,75

Euronext Maize €/T August-19 176,00 4,25November-19 173,50 1,75

Chicago Wheat c$/bu July-19 518,00 13,25September-19 521,25 9,25

HISTORY OF EURONEXT WHEAT AND CHICAGO MAIZE NEARBY EXPIRY IN €/T

Euronext milling wheat (€/t) CME maize (€/t)

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MAIZE GRAINGRAINS

SOYBEAN PLANTINGS ARE LATE IN THE USAThe oilseed market is pretty similar to the cereal market, in that it has been highly dependent on movements on the Chicago market for the past month. The trend therefore remains highly dependent on the planting conditions for soybean in the USA. Soybean is currently being held back by large US stocks, weak Chinese demand, and the scale of South America’s harvests. Any worsening in the planting delays for US soybean or any bullish acceleration in US maize could lead to a bullish breach of the $9/bushel threshold for soybean in Chicago, which would lead to an increase on European rapeseed. Yet the €370-375/t zone on Euronext’s August 2019 rapeseed expiry is still a major resistance zone not yet breached on this expiry. Rapeseed has not ventured beyond the €380-385/t mark on Euronext’s nearby expiries for over two years. The market is still therefore waiting for new factors before it begins a new assault on these resistance levels and breaches them. Such a factor could be the necessary rationing of European demand by price during the usage campaign, but only when the possibilities of importing or substituting have been exhausted. Traders are currently counting on a record import programme to secure their needs starting with Ukraine, where 2019 production is still expected to reach record levels.Canola imports will also be up to scratch as the country has record canola stocks which is currently

overshadowing the growing water deficit. There will also be a lack of rainfall for canola germination in parts of Australia. The palm oil market, lacklustre until now, could also spring back to life if the MPOB’s forthcoming report con-firms the fall in Malaysian stocks traders were expecting at the end of May.

Lastly, another driver for the oils markets is crude oil. Crude oil prices have fallen sharply in a climate of suspicion surrounding the outcome of OPEC’s next meeting which, at the request of Russia, will finally be held in early July instead of late June as initially agreed.

Expiry Closes 11/06/2019 2-Week Variation

Euronext Rapeseed €/T August-19 366,75 -2,75November-19 368,50 -3,75

Winnipeg Rapeseed C$/T July-19 455,50 4,60November-19 465,60 1,40

Chicago Soya c$/bu July-19 859,25 3,25August-19 866,25 3,50

FOCUS ON… US SOYBEAN PLANTINGS - HISTORIC DELAYSGrain market news revolves around the bad weather that has struck the US Corn Belt over the past few weeks. Traders are focusing all their attention on progress with maize plantings which were 67% complete at 2 June, against the usual figure of almost 100% by this date. We must not lose sight of the fact that the soybean plantings (soybean is also mainly planted in the Corn Belt) are experiencing historic delays. Based on the USDA’s figures for planting progress over the last 20 campaigns, the graph shows that 2019 plantings are indeed unusual. A 39% completion rate at 2 June has never been seen before - the plantings are usually around 80% complete by this date.The final planting dates fixed by US insurers range from 10 June to 30 June, so there is still plenty of time to finish planting. Nonetheless, with the weather set to be mainly wet over the coming weeks, there are risks. The flowering period

must also be monitored closely as it will be delayed until August, the hottest time of the year.

PROGRESS WITH SOYBEAN PLANTINGS IN THE USA OVER THE LAST 20 CAMPAIGNS % complete (source: USDA)

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SUNFLOWEROILSEEDS

TECHNICAL POINTETHANOL: GLOBAL SITUATION

CHANGES IN ETHANOL PRODUCTION

IN SHORTEthanol is an alcohol produced by the industrial fermentation of plants: wheat, maize, beet etc. Once distilled and hydrated it becomes bioethanol which, when blended with petrol, can be used as fuel. There are different blending rates. E85 contains up to 85% ethanol and 15% petrol by volume. To use this fuel, however, a FlexFuel vehicle is required whose engine can accept all petrol blends in the same tank. This fuel is being increasingly used, as conversion kits can be fitted to petrol cars. E10, however, contains up to 10% ethanol. It is compatible with most petrol vehicles put into circulation after 2000. The USA is the world's largest producer of ethanol, followed by Brazil and the EU. China is also seeking to develop its own network by 2020.

USA: MAIZE-BASED ETHANOLThe USA's ethanol industry developed as a result of the increase in crude oil prices in the 1970s. Maize, a

widespread crop in Corn Belt states, quickly became the main raw material for US ethanol production. In 2018, 138Mt of maize (37% of US production) were used to produce the country’s ethanol. Around 11% of US ethanol production is exported, mainly to Brazil and Canada. Three different blends are available at the pump in the USA: E10, E15 and E85. Barack Obama banned the summertime sale of E15 in 2011; this ban was overturned by Donald Trump on 31 May 2019 in an effort to support US agriculture. We can therefore expect to see a greater proportion of maize used to produce ethanol over the coming years.

BRAZIL: GOVERNMENT SUPPORT FOR THE SECTORBrazil's ethanol sector was developed to ensure the country's energy security via its sugar cane industry. Just like the USA, Brazil started to reduce its dependence on crude oil imports after the first oil shock in 1971. The government launched a programme

to develop biofuels allowing it to choose between sugar and ethanol every year, depending on the harvest. The use of fuel containing a minimum of 20% ethanol is now compulsory in Brazilian vehicles. Incidentally, maize production has increased over the years and could now play a larger part in Brazil’s ethanol production.

CHINA: ETHANOL DEVELOPMENT POLICIESChina aims to develop the use of ethanol throughout the country. At the moment only a few provinces and cities have a policy requiring an ethanol blending rate of 10% in petrol. Beijing wants to boost its anti-pollution measures and develop outlets for its maize production. The Chinese government would therefore like to extend the use of E10 to all vehicles by 2020. To do this, however, it may require 12 million tonnes of ethanol, although only 5 million tonnes are currently produced. China will need to import more maize and/or ethanol in the near future

USA Brazil EU China Canada Rest of world

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