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The report is read this week by farm trader, Henry Young.
- Sterling drop fuels wheat price rally
Brexit discussions between the UK government and EU negotiators ran aground this week. The prospects for the UK leaving the EU without a deal became increasingly likely and concerns this will be damaging for the UK economy triggered a sterling sell-off in foreign exchange markets. By close of play on Thursday, sterling had fallen during the week by more than 3% versus the euro to its lowest level since March. London wheat futures rallied £8/t with buyers also concerned that a 'no deal' Brexit could lead to tariffs on EU wheat of up to £78/t. This presents a very challenging prospect for UK millers.
Domestic milling wheat supplies have been depleted by a reduction of wheat planting of 25%, a decrease in yields of 30%, quality losses from rain and a delayed harvest. Millers have turned to Germany in particular to replace some of these lost supplies. However, a penal import levy for the second half of the season could lead to more extreme volatility in the market.
- World markets rise on increasing import demand
This week has seen further increase predictions published for the 2020 Russian wheat crop. Analyst SovEcon has increased its estimate to 83 million tonnes from 82.6 million tonnes. However, this hasn't stopped prices rising and Black Sea wheat futures climbing to new highs. World markets have been led higher by a wave of demand from many of the world's primary wheat importers. Through to the middle of next week, Saudi Arabia, Syria, Turkey, Ethiopia, Tunisia and Pakistan are all tendering to buy up to two million tonnes between them, fuelling world markets.
- Mixed fortunes for Southern Hemisphere wheat production
The Australian Bureau of Agricultural and Resource Economics (ABARES) has increased its Australian wheat production estimate to 28.91 million tonnes from its previous estimate of 26.6 million tonnes. This is due to increasing yield potential from beneficial rain, particularly in New South Wales. If realised, this year would see Australia's third-highest ever wheat crop following three drought years. However, further rain will be needed this month, particularly in western Australia; therefore, the crop is far from being over the line.
In contrast, wheat production prospects are mixed in the Southern Hemisphere. Argentina has experienced prolonged dryness and frosts in parts of its wheat area, leading the Rosario Grain Exchange to cut both its area drilled and yield prospect estimates. Wheat crop conditions dropped to 17% rated 'good' to 'excellent', compared to 47% this time last year. The estimate for 2020 Argentinean crops from the Rosario Grain Exchange is now down to 18 million tonnes in comparison to the August estimate of 20.5 million tonnes from the United States Department of Agriculture (USDA).
- USDA September WASDE Report
The USDA is set to publish its September World Agricultural Supply and Demand Estimates (WASDE) report on Friday at 5pm, UK time. We expect to see a number of revisions to production estimates for both wheat and corn. Wheat increases for Russia, Canada and Australia may be expected, offset by cuts in US and Ukraine corn production. It will also be interesting to see how Chinese demand features in the report.
- Brexit creates uncertainty in the barley market
Brexit uncertainty continues to affect the barley market as sterling sees further falls against the US dollar and the euro this week. This has boosted the competitiveness of UK exports, with port values firmer on the week, consequently narrowing the spread to domestic prices. Across most of the UK, feed barley discount to wheat is at least £40/t. UK domestic compounders can only fit so much into their rations before pellet quality is compromised with maximum usage reached at around £30/t discount. A widening discount will not see a significant uplift in domestic use.
- Crop 2020 export pace slow
The crop 2020 export pace is well behind crop 2019 despite the UK having a similarly sized exportable surplus. The Brexit cliff edge is very real for feed barley exports with the risk of losing the key market whilst also facing increased competition from Australian and Canadian origins for third country business in the new calendar year. Currently, a weak sterling does give the UK competitive advantage to third country destinations and, with increased volumes of barley coming to the market, hopefully the export pace will pick up.
- Covid-19 decreases demand for malting barley
The malting barley market, which appeared very one-dimensional before harvest, has now developed some interesting dynamics. On the supply side, spring barley yields are encouraging in all regions and far surpass pre-harvest estimates. England has got some challenges with high nitrogen and germination and pre-germination problems in some key growing areas. The market is going to need to pull on good quality barley and have it travel distance to fill domestic demand. On the demand side, data published by the Agriculture and Horticulture Development Board (AHDB) at the end of last week showed total domestic malting barley usage up until July 2020. However, July 2020 usage was down 22% when compared to July last year; a disappointing 120,000 tonnes for the month.
Considering many English pubs reopened on the 4th July, generating extra demand due to restocking, this demand figure is disappointing and shows the UK has not yet seen the back of the impact of Covid-19. With Covid-19 rates now increasing and social gatherings of over six people being made illegal in England from next Monday, the outlook for beer and whisky consumption, and subsequently malt and malting barley demand, remains challenging.
Some UK maltsters have now moved to a higher nitrogen specification where they can to help capture more variable parcels of barley. This should add several thousand tonnes of potential malting barley into the malting barley supply in the UK. At the time of this report, as the spring barley harvest draws to a close, even with the challenges of quality, the overall malting barley picture still feels heavy, especially with the uncertainty of Brexit looming at the end of December.
EU malting barley quality is generally very good with decent yields. UK export malting barley values are now a significant premium to Scandinavian values, making future export opportunities look limited.
- Weak sterling supporting prices
Local rapeseed markets look set to end the week about £5/t higher over the five trading days with sterling having lost 3% of its value against the euro. This is a disappointing rise given that the cost of imported seed would now be £10/t more expensive had all other market factors remained unchanged. However, other factors in the physical market have shifted. One feature of the week has been the increase in domestic farm selling at a time when the Erith crush remains closed and the Liverpool intake is dominated by imported seed.
- Prospects good for Australian production
Additionally, European markets have drifted lower over the week, with the Paris futures market losing around €4/t. Concern about the dip in the availability of seed from Ukraine last month has now turned into optimism over the prospects for the Australian canola harvest this month. Latest forecasts are raising crop estimates by 47% to 3.42 million tonnes, which could add as much as one million tonnes extra to Australia's exportable surplus. Timing might be an issue, as Australian supplies will not be available to crush in Europe until early 2021, but there is no doubt that this line of supply is settling a few nerves amongst European crushers who are faced with a sharp drop in local supplies.
- USDA report due out this week
Focus now turns to the USDA WASDE report for September, which is due to be released late Friday afternoon. It is expected that the report will cut soybean yields in the US and highlight the ongoing strong demand for oilseeds from China. US soybean futures markets are on a run of 12 successive sessions of higher closes but it remains to be seen how markets will react to the detail in the report. A bullish report is expected but, if the reality is more modest, markets could turn lower.
- Bean quality better in the north
Improving weather in the midlands and further north this week has allowed the bean harvest to get underway again and yields and quality are improving as the harvest moves north. Despite rises in other markets, bean values remain largely unchanged this week as there is little new demand from either the domestic or export markets. Buying interest for very good quality beans to Morocco has been seen but, with buyers wanting a maximum of 2% Bruchid, this will be very difficult to supply.
- Current crop values static
Values for current crop are not expected to move much next week, with more beans being harvested, but with new crop bean contracts linked to wheat futures, these are certainly worth considering. Please speak to your Frontier farm trader for more information.
- CAN prices on the rise
Nitrate markets have remained quiet on the domestic front this past week. Pricing levels remain firm as supplies of imported ammonium nitrate have slowed down and UK production has eased back slightly.European calcium ammonium nitrate and YaraBela Extran prices have increased by a further €4/t this week, adding pressure to increase prices further. However, it is worth noting that urea offers have relaxed and signals are pointing towards a softening on prices over the next few weeks as more supplies become available.
Phosphate markets are firm on global supply and demand figures and have increased in value by up to $20/t over the past two weeks. Currency has gone some way to absorb the increase shown at the farm gate, but it is expected that a further price rise will follow on a similar level.
Potash markets remain fairly static with no supply issues in the immediate timing, but leading traders believe that potash may be looking undervalued going forward and that Brexit issues will arise as we go into the final 100 days of UK and EU negotiations.
If you know what your PK requirements are, it is advisable to order soon to avoid disappointment.
- Liquid UAN
Liquid offers remain open for autumn and spring fill and are extremely competitive in the market. At the time of writing, values are at £/$ 1.2952 and £/€ 1.0872.
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