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- USDA dampens the bull spirit
Earlier this week, the United States Department of Agriculture (USDA) published its March World Agricultural Supply and Demand Estimates (WASDE) report. Speculative traders holding significant long positions in US grain futures were hoping for a helping hand to support their bullish view but were left disappointed.
It was expected that the USDA would lower its corn production estimates for Argentina and Brazil following dry weather in Argentina and excessive rainfall in Brazil. The wet conditions in Brazil have delayed soybean harvest and consequently delayed planting corn crops at the optimum time. However, the USDA made no changes to these estimates.
Overall production increases for India, South Africa and Bangladesh saw world corn production rise by 1.7 million tonnes to 1.136 billion tonnes. World corn stocks are now seen one million tonnes higher on the month at a new total of 287.67 million tonnes. This figure is 15.4 million tonnes down on the year.
The USDA made minimal changes to the world wheat balance sheet. Australian wheat production was increased by three million tonnes on the month to 33 million tonnes, which is closer to the recent 33.3 million tonne estimate from the Australian Bureau of Agricultural and Resource Economics (ABARES). In turn, total world production is seen 3.3 million tonnes higher at 776.76 million tonnes, which is just under three million tonnes higher than last year. However, the additional wheat supply was offset by a five million tonne jump in Chinese feed wheat demand, which relates to its rapidly increasing pig herds. Wheat world end stocks have dropped three million tonnes on the month to 301.19 million tonnes, which is just one million tonnes up on the year. However, world wheat stocks, excluding China, are actually 1.5 million tonnes up on the month at 150.76 million tonnes. According to the USDA, China currently holds over half the world's wheat stocks. Since the WASDE report, profit taking has seen US wheat and corn futures prices fall by 2%.
- Egypt bags bargain wheat from Romania
Egypt, the world's largest wheat importer, has been taking a back seat in recent weeks with wheat shipments already booked through March. The country is adverse to the high old crop prices. However, the dip in world prices this week has seen Egypt return to the market and buy wheat from Romania for shipment between 15th and 25th April. Excluding freight costs, the average Romanian offers at $284.50/t undercut the cheapest Ukrainian and Russian offers and were a full $10/t below the average price of French offers. Egypt confirmed the purchase of 360,000 tonnes and its state grain importer, the General Authority for Supply Commodities (GASC), confirmed the purchase will leave the country with five months of strategic wheat supplies. How much additional imported wheat Egypt will now buy before harvest begins in the Northern Hemisphere is unclear but the old crop price premium to harvest is about $40/t.
- Mixed picture for US wheat
Weekly crop condition ratings for key US winter wheat producing states highlight mixed fortunes. This week, Kansas and Texas each slipped a point to 36% and 27% respectively, rated 'good' to 'excellent', whilst Oklahoma rose from 46% to 53%, rated 'good' to 'excellent'. Traders have been concerned about the abnormally dry soils across the plains following several months without beneficial precipitation. However, the near forecast is for storms, heavy rain and snow which will be beneficial for wheat crops in Colarado, Nebraska, Kansas and Oklahoma. These conditions added to general negativity for US wheat futures.
- Argentina remains dry
The Buenos Aires Grain Exchange (BAGE) has a more pessimistic view of Argentina's corn production prospects than the USDA. Ongoing dryness in the country led BAGE to cut its corn crop estimate by one million tonnes to 45 million tonnes. This compares with the USDA March estimate of 47.5 million tonnes. Dryness looks set to continue and this may also have a negative impact on wheat and barley planting.
Argentina's farmers may plant less wheat for 2021-22 and make a switch to barley in order to satisfy increasing Chinese demand. China has turned to Argentina this season, having snubbed Australian barley supplies. Farmers are also concerned about potential wheat export controls. The country's wheat area could drop by 25%.
- Spring barley sowing progressing well
Good progress has been made in southern England where up to 55% of spring barley is in the ground already. Further north, progress is also being made on the lighter lands of the Cotswolds, Lincolnshire, West Midlands and Lancashire. In East Anglia, the lighter soils have been sown. In Scotland, a small start has occurred in the borders. France has completed its sowing but the Baltic states have not started; they generally wouldn't begin sowing before the end of March. Heavier soils are still too cold and wet for growers to make a start. Hopefully, drier weather will return next week.
- Crop 2021 malting barley trade kicks off on brewing types
Buying interest is present for both domestic and export this week as malting barley achieves reasonable premiums over feed. French malting barley is at a premium to the UK, influenced by the significant sales of feed and malting barley made to China some months ago. It is believed that as much as two million tonnes have been sold for export from French ports to be shipped between the end of July to December. UK export prices need to be competitive with Danish supplies to enable sales to be made to the EU.
- Feed barley prices mark time
There has been little trade for both old and new crop this week. Values are a little lower on last week due to higher sterling and weakening futures markets. New crop values remain at a £15-18/t discount to wheat depending on location. Farmers have been reluctant sellers of new crop recently as spring field work has kept them out of the office and they prefer to wait to see how the crop emerges out of the soil. With two-thirds of the total area of UK barley sown in the spring, supply and demand is highly reliant on the yield of the spring crop. Hopefully the UK will see more mixed spring weather than in 2020, especially south of the Humber which was impacted by drought last year.
- Little excitement in USDA report
The keenly anticipated March edition of the WASDE report was released by the USDA this week but the content proved to be somewhat underwhelming. The report kept most of the key numbers unchanged from the February release, leaving the crucial US closing soybean stocks level at the barest minimum needed to get from one crop year to the next. The estimate for bean production in Argentina was reduced by 500,000 tonnes but this was unavoidable given that this region is showing the worst crop ratings on record. A range of difficulties in Brazil, including wet conditions, industrial action and Covid lockdowns is causing some doubts over the country's ability to supply. There are also concerns over the potential crop size due to anecdotal reports of abandoned fields and crop damage. The usual seasonal switch of importing from Brazil rather than the US has begun, but the US is on track to exceed its USDA-forecasted export totals for the year by April, which means the USDA will need to re-evaluate much of its data in the next report. The next key date in the calendar will be the US stock and planting report to be published on 31st March.
- Ongoing problem of low stocks isn't going away
Markets initially reacted negatively to the WASDE report but, as we've seen in the past, the reality of low stocks and insatiable Chinese demand has soon re-established the upward momentum in global oilseeds markets. In the past few days, this effect has been felt more in new crop markets than in spot trades. Progress with the South American harvest is giving some short-term comfort but with corn prices riding high there is not much prospect of a rapid rebuild of oilseeds stocks in 2021/22. On this basis, heavy discounts for new season supplies are hard to reason.
- New crop prices firm as doubts emerge about Australian production
In our domestic rapeseed market this anomaly is being slowly rectified. This week has seen little change in nearby prices into the benchmark Liverpool market, but new crop over the same period has firmed by almost £10/t. Australia is very much centre stage in the new crop story due to slightly reduced availability from Canada and Ukraine, which generally fulfil the European pre-Christmas import requirements. This leaves a greater than usual reliance on Australian supplied to meet EU requirements from January onwards.
In response to higher prices, Australia is forecast to plant 14% more canola, covering an area of 2.7 million hectares. However, a repeat of the country's phenomenal yields of 2020, when crops averaged 1.7 tonnes per hectare, is unlikely and current forecasts put the expected yield at a more average 1.3t/ha. This would reduce total output by almost half a million tonnes at a time when Europe's demand for imports is going up. Not surprising, therefore, that Europe's rapeseed crushers are bidding up new crop values.
- Old crop pulse markets drying up
Demand for old crop peas and beans has come to somewhat of a standstill in light of strong sterling and consumers' needs already fulfilled. There is a need for greater demand later in the season, but this currently seems unlikely to appear. For this reason, it is probable that values will drop as a natural market reaction. Any current marketing opportunities would be wise to consider.
- Further positivity on spring pulse plantings
Spring plantings are progressing well and on target. Prior to this week's storm, reports showed that farmers have been able to get pulses into decent seedbeds. Indicators suggest that the UK is set to be more competitive in international markets next year. However, it's difficult to predict what may happen in the market between now and August.
There is slow new buying demand for ammonium as first applications continue. Prices remain stable in the UK and there is little buying activity on domestic ammonium nitrates and even less for imported product. The situation is different in mainland Europe as prices for bulk 33.5% increased once again by €10/t into April. The ammonia situation globally is still firm and supply is tight. This situation is worsened by the recent need of the US to cover product that was lost due to plant outages.
The high ammonia price is holding up ammonium nitrate and urea levels. Granular urea sales are approximately $400/t bulk into various international locations and show no signs of slowing down through April and May.
Given the positive plantings in the UK and Europe, demand is expected to increase again as we head towards April. When the global ammonium situation is taken into account, along with the production rate of nitrates, it's likely prices will rise again in response to tightening supplies.
Growers are advised to contact their Frontier contact to discuss ongoing requirements and ensure timely delivery.
Phosphate and potash prices remain flat. However, supply issues on bulk MOP into blenders are causing delays in bagged MOP/PK and NPK blends going out to farm.
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