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- Market volatility continues
The threat of conflict between Russia and Ukraine continues to generate price volatility in world wheat markets. The week started with an optimistic view from traders that a diplomatic solution to the tensions could be found following a seemingly successful meeting between French president Emmanuel Macron and Russian president Vladimir Putin. This triggered a bout of selling on futures markets on Tuesday. However, later in the week, military exercises between Russia and Belarus led Ukraine to state its ports had been blocked by Russian navy activity, which halted commercial shipping operations. Speculative trading and panic buying took wheat futures sharply up to their highest prices in over two weeks. Following this period of panic, calm prevailed and most of the futures price gains were lost, highlighting how sensitive a matter this potential conflict is for grain markets.
The importance of Ukraine as a grain exporter was reinforced this week with the latest data showing 39.2 million tonnes of grain have been shipped so far this season from the country, including 17.2 million tonnes of wheat and 16.1 million tonnes of corn. This is up a third on last season.
- Canadian wheat stocks shrink
Wheat markets found further support this week from the latest Canadian wheat stock figures published by Statistics Canada (StatsCan). Stocks on 31st December 2021 were estimated to be at only 15.6 million tonnes, which is 9.5 million tonnes down on the year and two million tonnes below trader expectations. Prolonged dry and hot weather caused significant crop losses in Canada during the 2021 harvest, with production falling below 22 million tonnes. This compares to over 35 million tonnes harvested in 2020. The loss of such a significant supply of quality wheat has been one of the primary bullish wheat price drivers this season and continues to provide support to values in the UK and in global wheat markets.
- Minimal changes from the USDA
The United States Department of Agriculture (USDA) published its February World Supply and Demands Estimates (WASDE) report this week but made minimal changes to its wheat and corn balance sheets, which contrasts with other recent estimates from analysts and officials. A reduction in South American corn production potential is an increasing concern due to prolonged periods of hot and dry weather, particularly in Argentina and southern Brazil. However, the USDA left its production estimates for Argentina unchanged at 54 million tonnes and trimmed Brazil by only one million tonnes to a total of 114 million tonnes. The Buenos Aires Grains Exchange (BAGE) cut its Argentine corn crop estimate to 51 million tonnes; the estimate from the Rosario grains exchange is lower still at 48 million tonnes. The USDA foresees world corn stocks 800,000 tonnes lower than last month at a total of 302.22 million tonnes, but this could prove to be notably lower. Wheat data was mildly bullish with world end stocks down 1.8 million tonnes to a total of 278.21 million tonnes. However, there are anomalies in the data. This week, analyst group Stratégie Grains cut its EU wheat export estimate to 30.4 million tonnes from a previous figure of 31.2 million tonnes due to competition from the Black Sea and Argentina. The USDA maintains an EU export estimate of 37.5 million tonnes, although many are questioning why.
- Old crop barley prices ease back
Feed barley prices have fallen £3/t this week in the livestock areas, as sellers chase the buyers who are reluctant to add to cover. Pig farmers' margins are too low and the benign winter is not bringing many top up orders from the ruminant sector. This, added to feed barley not being at a big discount to feed wheat, demonstrates that monthly usage of barley by feed compounders is on the decline. As for malting types, prices have dropped around £20/t in the last two weeks. This is because buyers have left the market now that the majority of their 2021 crop needs have been covered. Most malting plants are running well in terms of taking contracts at present, but it may be a while before they buy the last tonnes they need for the season.
- New crop feed barley prices move up slightly
- Volatility remains the only certainty in oilseeds markets
This week, extreme volatility has continued in oilseeds markets, which are currently plagued with uncertainty. The USDA released a report on Wednesday evening that saw a reduction in its South American soybean production estimate - although not quite to the extent that the trade expected. Following this, the Chicago Board of Trade (CBOT) soybean market traded up 25 cents per tonne, which would be a big move in a normal year. However, the day prior to this, the market had traded in a 70 cent per tonne range within a single day – the largest price range seen within a single day in the market this year. Soybean futures remain unchanged on the week.
Rapeseed has become largely disconnected from beans due to its relative expensiveness. However, with soybeans and, in turn, soybean oil becoming more expensive, the expectation is that rapeseed and its products will become more price attractive. However, the market is yet to reflect this. At the time of writing, UK ex farm rapeseed values are down around £5/t since the start of the week, with big question marks remaining over how much rapeseed the UK and EU are going to crush for the remainder of the crop year. Crush volumes will be completely dependent on whether crush margins improve. Margins have been low for some time due to high seed prices and increased energy costs for processing facilities.
There has been little or no change from other ammonium nitrate (AN) sources following the new terms from CF Fertilisers last week, which is a good indication that UK values are comparable to the rest of Europe. The recent adjustment in the urea market has appeared to cause UK importers and our UK growers to have some renewed interest, resulting in increased enquiries over the last week.
Results from the recent Indian tender have been delayed as offers continue to be submitted. This large urea demand is likely to have further impacts on the tightness of supply in some areas of the globe.
It is, however, worth noting that nitrogen applications have started across some areas of the UK. Therefore, there is likely to imminently be increased demand for additional product. We advise you speak to your agronomist or farm trader now about options that are regionally available.
There have been good levels of UAN trade this week for new business as we enter the application period in large parts of the UK. Suppliers are keeping a close eye on available product until a clear picture is known, with limited volumes of straight nitrogen and nitrogen sulphur being offered on a price on application basis.
UAN application systems mirror solid systems in the current climate, with a number of growers having both solid and liquid on the farm in order to 'cover their bases' during a difficult buying period pre-Christmas.
The last of this season's tanks are being installed as we enter mid-February. Tank supplies have been challenging this season due to post-Brexit raw material costs, Covid-19 and volatile gas prices. These matters, coupled with the increase in haulage costs, will have an impact going forward throughout the industry. It remains to be seen how the trade will react to the increased cost of tank installations on farm.
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