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- USDA price spike lost
In its August World Agricultural Supply and Demand Estimates (WASDE) report, the United States Department of Agriculture (USDA) surprised markets last week with larger-than-expected production cuts for some of the world's major wheat and corn producers. After the report was released, strong wheat futures surged a further 5% to multi-year highs. However, fresh selling and speculators banking profits gathered pace throughout this week and wiped out the short-lived spike in prices.
In the USA, markets eased lower this week, not helped by the strength of the dollar. The US dollar reached its highest point versus the euro since early November 2020, and US commodities prices need to adjust to remain competitive in export markets. The pace of weekly wheat export sales in the USA remains 2% behind average. US corn export sales, however, reached 30% of target and are currently at double the pace of last season. Last week, the USDA cut US corn yields to 174.6bu/a from its previous estimate of 179.5bu/a, adding to the bullish tone in the market. However, the 2021 Pro Farmer Midwest Crop Tour event which took place this week found encouraging yield potential for primary corn pricing states. Illinois is expected to achieve above average yields, while western Iowa and Nebraska look set to achieve higher yields than last year.
- Volatile French wheat futures
Despite lower prices, Paris wheat futures continue to be volatile in technical trade. With the French wheat harvest now over 91% complete, quality in northern France has deteriorated further with specific weights reported to be down to 70kg. It is thought as much as 60% of the French wheat crop is no better than feed specification, making it extremely challenging to meet the futures wheat and export specification of 76kg. Traders who have sold French wheat futures with the intention of supplying physical wheat to their sales are unable to source the appropriate quality and have been forced to buy back their contracts. This sent the nearest September contract to a €30/t premium over the December contract, when a week ago it was at a €3/t discount.
UK wheat futures extended their discount to French futures this week. The Department for Environment, Food and Rural Affairs (DEFRA) published its provisional English wheat area at 1.624 million hectares which is up 28% on the year and slightly ahead of expectations. Yields and quality are mixed, but the prospects for a surplus of feed standard wheat which will need to find an export home looks increasingly likely as adverse weather continues to hamper harvest progress and further impact on quality.
- Romania bucks the trend
Prolonged drought and heat have resulted in significant production losses for corn in Brazil and wheat in Russia, North America and Canada. Coupled with French quality issues, these have been primary drivers for the current bullish wheat market. Romania, however, is benefitting from the high wheat prices, having enjoyed a bumper wheat harvest. Last season it suffered from drought conditions, resulting in a crop of 6.3 million tonnes, but timely rainfall this season will see Romanian farmers harvest 11.3 million tonnes and possibly overtake Poland as the EU's third largest producer, behind Germany and France. With domestic consumption no higher than three million tonnes, this gives the country significant firepower in export markets. This week Romania offered the most competitive wheat in the latest Egypt tender and secured sales for 180,000 tonnes at an average of $331.50/t including freight. This was $38/t higher than the wheat it sold to Egypt at the beginning of the month and the highest prices Egypt has paid for wheat for six years.
- Premiums over feed remain for malting barley
The UK harvest pace has slowed this week due to the continued adverse weather, with winter barley harvest now complete and spring barley harvest still in its early stages. Winter barley yields were close to the five-year average but there has been more variability with specific weights and screenings in comparison to previous years; especially in southern and eastern regions of England which are the primary exporting areas for barley. Early results on spring barley are good and large premiums over feed remain for malting barley. With quality holding up, it is worth harvesting spring barley to ensure this premium can be banked.
- UK barley demand increasing
The UK has seen demand from the domestic market into the winter, as well as from the export market following last week's bullish report from the USDA. Barley is holding its position in the domestic ration, although the discount to wheat has narrowed slightly to approximately £15-17/t depending on location. However, as that discount to feed wheat narrows, the usage of barley in compound feed decreases, as feed compounders switch back to wheat. This is something that should be monitored closely.
Export demand from the EU is also coming to the UK as barley's discount on the continent to MATIF wheat futures increases. The UK's competitiveness on the export market has also benefitted this week due to the value of sterling weakening, particularly against the US dollar.
- Markets take a breather
Domestic rapeseed prices soared by almost £50/t during the first two weeks of August, fired by a bullish report from the USDA and updates on the state of the Canadian canola crop. However, markets have settled this week, with current values around £10/t down from the peak. There is talk in the market of improving weather conditions in North America and a surge in sunflower oil supplies in 2021/22 which could amount to an extra three million tonnes of supply. This news is bearish for the wider oilseeds complex and will test the ability of consumers to switch from expensive rapeseed to cheaper oil alternatives.
- Canadian crop woes continue
Canada remains the main topic of conversation in world rapeseed markets. Last week the USDA cut its canola crop estimate to 16 million tonnes from its 20.2 million tonne July estimate, with some analysts speculating that the final crop outturn could be as low as 12 million tonnes. Canada usually accounts for approximately 65% of global export volumes and with yields at their lowest since 2012, we are likely to see export availability drop to levels not seen since 2007/08. More will be known when Statistics Canada updates its crop figures on 30th August.
- Chinese soybean buying picks up
With its national pig herd reportedly up 31% year-on-year, China has begun to increase the rate it is buying soybeans at. However, the pace of this buying is still far behind what it was at this time last year. This will be something to monitor over the coming weeks.
The costs of ammonium nitrate production across Europe and the UK continue to be affected by high gas prices, prompting producers to withdraw prices for August and September again this week with another rise being introduced. With winter yet to come, it is unlikely gas prices will alter much in the last quarter of this year or the first quarter of 2022 unless gas supply is improved and storage facilities are filled up. Since September 2020, the gas price has risen from £0.25/therm to £1.10/therm.
Urea prices have levelled out with traditional low summer demand; however, India still requires approximately five million tonnes this calendar year. In addition, demand from South America and the US is expected to increase.
Nitrate markets are slow in the UK as consumers focus on harvest. With price increases occurring almost weekly, it is advised to discuss plans and requirements with your Frontier contact.
Phosphate markets slowed this week and global prices stabilised. UK markets have moved up slightly to reflect new shipments.
MOP remains firm due to sanctions on Belarus, which is one of the world's largest suppliers. The UK market at present does not reflect true replacement costs, meaning a large price rise can be expected very soon. Growers are strongly advised to cover requirements.
With price increases occurring or imminent in other areas, growers should also consider NPK compounds.
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