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US Chicago Board of Trade (CBOT) wheat futures rallied sharply this week, gaining 10% in value from last week's three-month lows.
Persistent hot and dry weather conditions across US and Canadian spring wheat production areas look set to continue into next week and will prove further damaging for yield potential. Minneapolis spring wheat futures rose above $9/bu which is their highest since December 2012. The fast rise in spring wheat futures prices has significantly extended its premium to CBOT soft red winter (SRW) wheat futures above $2.20. In early April it was little more than 30 cents.
Monday's US spring wheat progress report saw only 16% of the crop as good to excellent. Although this was unchanged on the week, it also saw the poor to very poor rating increase five points to 55%. On Monday, the United States Department of Agriculture (USDA) cut its US spring crop estimate by 41% on last year and cut total 2021 US wheat production by four million tonnes from its June estimate to 47.52 million tonnes, which is two million tonnes below last year.
Whilst US wheat futures made notable gains this week, the marketing challenges and need for prompt movement of a large physical wheat crop saw Romania make aggressive offers to Egypt in its latest wheat tender. Romania was the cheapest seller, undercutting offers from Ukraine and Russia and selling 180,000 tonnes for September shipment at $231.88 FOB, which excludes the freight cost. This is the equivalent of about £153 ex farm for 12.5% protein milling wheat; a significant discount to London feed wheat futures which are valued at around £170/t.
Romania is expecting a bumper wheat harvest of over nine million tonnes, which is up by almost three million tonnes on last year.Romania's larger crop is contributing to an increased estimate from Stratégie Grains for EU-27 wheat production, up by 1.9 million tonnes on last month to 133 million tonnes. This is now 14 million tonnes up on last year and three million tonnes ahead of recent trade guesses.
The USDA published its July World Agricultural Supply and Demand Estimates (WASDE) report on Monday, presenting a mildly bullish set of data. 2021 world wheat production was cut by two million tonnes to 792.4 million tonnes, although this is still 16.5 million tonnes up on the year. However, increased demand from this season will reduce end stocks and in turn end stocks for 2021-22, which are seen five million tonnes lower than last month to 291.68 million tonnes.
From last month, cuts in production were made for the US which is now down four million tonnes. Canada is down 500kt, Russia is down one million tonnes to 85 million tonnes, and Kazakhstan is also down one million tonnes. Much of Canada is suffering hot and dry weather similar to that which the northern US states are experiencing, and the spring wheat production estimate is 40% down on the year. This week, Russian agricultural consultancy, Sovecon cut its Russian wheat estimate to 82.3 million tonnes and in Kazakhstan, the agriculture minister was dismissed after it was alleged that there was not enough support being provided to the country's farmers as they combat extreme drought conditions.
The barley harvest has started in the UK, as growers with more forward crops looked to capture some early supply premium. Tight old crop supply has meant the gap between new and old crop prices has been quite significant and, as a consequence, barley that is 'in the shed' for the next couple of days may bring in a significant premium. However, with more growers indicating they will have new crop supplies in the next few days and with a settled weather forecast on the cards, this opportunity will not last long.
On the whole new crop feed barley values have firmed this week, following wheat upwards.
The Agriculture and Horticulture Development Board (AHDB) crop production estimates for the UK were published this week, with an estimated barley crop of 7.24 million tonnes. This figure is based on the AHDB crop condition report and the early area survey. This puts barley production well down on what was an exceptionally large barley crop in the UK last year due to the big spring barley area.
Barley harvest in the rest of Europe has been put on hold this week as storms occurred across significant parts of France and Germany. Early reports from France were of above-average yield and good quality for winter malting barley. The winter crop in France is probably 50% complete and all eyes will be on this region next week with regards to malting barley, particularly as the weather improves and harvest resumes.
New crop European rapeseed futures markets hit contract highs earlier this week, with UK domestic prices at the time trading £15/t, which is up from the start of the month. There was an impressive £130/t jump from levels seen back in early January. Prices have tailed off in recent days though, with profit-taking evident in some North American markets and sterling showing signs of strengthening.
It is difficult to foresee any sustained weakness in European markets unless there is a marked improvement in crop conditions in Canada. The reality is that we are getting past the point where an improvement in Canadian weather can put yields back on track. There are reports that the severe drought and temperatures have shortened the blooming period for much of the canola crop, which will lead to irreversible yield losses.
The USDA's July WASDE report wasn't expected to be much of a market mover, however, there was a few surprises. It was more notable for the issues that it didn't address rather than revealing any new data.
Chinese soybean imports were left at unrealistically low levels and there was little acknowledgement of the potential impact from increased use of soybean oil for energy in the US. There was no downward revision in US soybean yields since the OECD-FAO Agricultural Outlook report in February to reflect recent damage to crops and, lastly, Canadian canola yields were left at seemingly very optimistic levels. All of these are issues we expect will have to be addressed in the August edition of this monthly report.
In all areas of the UK, the bean crop is still looking good with little evidence of disease, most likely due to the ideal growing conditions. If vining pea yields are an indication of other late-harvested pulse crops, we expect pea and bean yields to be 25-30% better than last year. This is not surprising given the contrasts between the two growing seasons. There has been very little change in the market over the past week, with values following wheat prices but very little business being transacted.
There is another Indian tender planned for the purchase of a further large quantity of urea. Markets remain firm on the back of global pricing, with no new urea trade into the UK and there are many suppliers unwilling to commit to buy at current values.
Gas and ammonia prices continue to increase and this coupled with freight costs is adding pressure to values, which could mean further increases. However, the market in the UK has slowed down as growers now turn their thoughts to the upcoming harvest. There has been a well-documented shortage of HGV drivers in the UK in general and the impact is noticeable well-ahead of the normal spring demand period. This is something to consider going forward.
UAN prices were withdrawn this week and we await new values for any remaining tank fill in due course. It is looking like spring values for liquid may not be imminent.
Phosphate and potash values continue to increase globally, which is in turn affecting the UK prices. Phosphate prices in the UK are still behind the curve in reflecting true replacement values. Potash prices remain firm and are still being driven by global demand – we expect this to continue.
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