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The report is read this week by farm trader, Sophie Cath.
- AHDB signals an even tighter UK wheat balance sheet
Early this week, world wheat markets eased from their recent highs, with futures seeing some technical corrections. However, on Thursday, the Agriculture and Horticulture Development Board (AHDB) published the Basic Payment Scheme (BPS) data; the content of which sent London wheat futures back to their contract highs.
The BPS data suggests the UK wheat area for the 2019 harvest could be 3% smaller than the Department for Environment, Food and Rural Affairs (DEFRA) June survey stated. If the figures from the Adas harvest reports are used, which describes yields of 8.9t/ha, the UK wheat crop for 2019 may have only been 15.631 million tonnes. This is over half a million tonnes less than the official figure of 16.223 million tonnes published by DEFRA.
This suggests the carryover from the 2019 crop into this season could be almost 600,000 tonnes less than previously thought. If this is the case, it leaves an even greater import need to meet domestic demand.
Meanwhile, there are wide-ranging trade estimates for the 2020 UK wheat crop. If the reality is as little as nine million tonnes, the import need could be a staggering 4.5 million tonnes; a challenging target for the supply trade industry to meet.
- Russian wheat prices continue to climb
A combination of the strong pace of Russian wheat export, concerns for low soil moistures, and reluctant farmer selling have sent Russian wheat prices higher again this week. However, wheat of Russian origin is still the most competitive into Egypt; this was highlighted by the latest tender held earlier this week. Egypt bought just over 400,000 tonnes from Russia at an average price just above $256/t, including freight. This was a further $7/t above the prices Egypt paid last week and $9/t above the tender prior to that on 3rd September.
French wheat was almost competitive on a free on board (FOB) basis but, due to a $7/t freight disadvantage, France made no sales.
The USDA in Moscow stated that Russia may well introduce grain export quotas in the second half of the season - January to June 2021 - to ensure domestic supplies. This will depend on the harvest size and export pace.
- Argentina too dry
Crop conditions in Argentina have worsened with Buenos Aires Grain Exchange dropping its wheat crop estimate from 21 million tonnes to 17.5 million tonnes. This compares with figures from the September World Supply and Demand Estimates (WASDE) report from the USDA, which placed its wheat crop estimate for Argentina at 19.5 million tonnes.
The condition of some crops was described as 'critical' following months of dry weather. However, beneficial rainfall for many of the country's major wheat areas is expected over the weekend.
Last season, Argentina ranked sixth in the list of the world's primary wheat exporters and shipped 13.5 million tonnes.
- Barley competitive in North African markets
Feed barley prices firmed this week, with currency helping UK barley competitiveness. UK barley is now competitive into major North African markets, which is encouraging as the UK looks to have a sizable barley surplus to move. Barley is also being exported at a brisk pace from non-deepwater ports, but all this business is going to European destinations and there remains plenty of uncertainty about the UK's trading relationship and potential tariffs after Christmas.
- The market for malting barley remains uncertain
The malting barley market has been relatively quiet this week. However, the continued impact of Covid-19 on the brewing and distilling sector, and subsequently on the malt and malting barley market, cannot be understated. The situation remains very unclear, with many brewers and distillers forecasting month-to-month rather than longer-term; this makes predicting total UK malting barley demand for the season very difficult. Latest restrictions on the hospitality sector, local lockdowns and increasing cases of Covid-19 are all doing little to build confidence in the sector.
- Scottish malting barley moving south
An interesting trade flow this season will be that Scottish malting barley will be moving south to England by both truck and ship. Despite a huge area of spring barley being sown in England due to challenging autumn sowing conditions, nitrogen content in many key English malting barley growing areas are higher than maltsters require. In addition, many late harvested spring barley crops have both germination and pre-germination issues. Therefore, low-nitrogen Scottish barley will either be used to blend with English malting barley or used on its own to satisfy low-nitrogen English malting barley demand.
- Softer markets
There has been a somewhat softer feel to markets this week, with prices drifting £10/t lower since Monday due to a combination of a stronger sterling, concerns over losses in global stock markets, favourable weather for crops around the globe, and nervousness on the demand side as more countries head towards a possible second wave of lockdown measures.
- Concerns over lockdown measures
Back in the spring, it was evident that the commercial sector - restaurants, hotels and fast food outlets - made up a significant proportion of the demand for vegetable oils. A move back to lockdown conditions would therefore have an impact on crush volumes for food markets. However, it is not only the food markets that will be affected but also the biofuel crush sector, which is heavily dependent on maintaining free movements on our roads. Looking at the market from this perspective, it's understandable that the rapeseed market is going to be much more responsive to Covid-related restrictions than most other sectors.
- Weather and exchange rates need watching
Elsewhere, the weather seems to have turned more crop-friendly, with rain around Europe and the Black Sea, warm dry weather in the US and Canada, and welcome moisture in south-eastern Australia. Suddenly, traders are looking less at the supply side of the market and are focusing more on the economic indicators that are all pointing downwards in the short-term. For the UK market, there is also the concern that if the government does get a trade deal in place with the EU before the end of the year, there could be a jump in the value of sterling. Under these circumstances, some analysts see sterling firming by as much as 4% which, as a lone factor, could knock £15/t off the value of unsold stocks.
- Bean values tempered by Egyptian tenders
The bean market has now polarised into feed beans trading in the south and human consumption beans in the north. In the south, where shippers are short for spot vessels, market values have continued to rise. However, this has been tempered by some Egyptian buyers who had bought feed cargos selling them back in expectation of a huge Australian crop about to hit the market.
- Premiums for beans suitable for human consumption
In the north, where yields and quality have been so much better, premiums of £20-25/t have been available for human consumption quality beans. However, the market stalled midweek as buyers removed their bids, hoping for further supplies to dampen market values. This window of activity will be short lived either way with the arrival of new crop Australian beans.
This week, we have seen a slower urea market due to lower demand across Europe. However, within the next seven to ten days we will see another Indian tender being offered out, which will give a good indication of where global urea values will lie for the autumn and what effect that will have on supply and demand. Indian purchases are running 500,000 tonnes behind year on year.
Nitrogen prices remain firm with European producers increasing values offered to the market. Plant maintenance is also planned across many European sites, which will result in lower production numbers and existing stocks being used up. Once again, currency and Brexit negotiations will play a big part over the next two months in which direction prices go.
With harvest now all but completed across the UK, demand for fertiliser has increased markedly over the past week. With this in mind, our advice as in previous reports is to get your autumn requirements covered and also start planning what nutrition your crops will need come the spring. Current stocks of raw materials are being drawn down and replacement values are increasing, which will feed through to farm gate pricing.
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