Wheat futures markets fell heavily mid-week, losing almost 4% of their value. A number of changing elements led to this long liquidation resulting in the loss of all the gains made last month and the new record high prices. The fast-spreading Omicron variant of Covid-19 presents a host of uncertainties but will almost certainly result in lower demand as the hospitality trade once again has to manage lost business. However, there are changing fundamentals that point towards a more relaxed world wheat balance sheet with an increased supply from some of the world's major wheat exporters.

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WHEAT

  • Sharp decline for wheat markets

Wheat futures markets fell heavily mid-week, losing almost 4% of their value. A number of changing elements led to this long liquidation resulting in the loss of all the gains made last month and the new record high prices. The fast-spreading Omicron variant of Covid-19 presents a host of uncertainties but will almost certainly result in lower demand as the hospitality trade once again has to manage lost business. However, there are changing fundamentals that point towards a more relaxed world wheat balance sheet with an increased supply from some of the world's major wheat exporters. The Southern Hemisphere wheat producers, Australia and Argentina, will harvest record wheat crops with estimates for Argentina exceeding 22 million tonnes as its harvest reaches 65% complete. This compares with just 17.65 million tonnes harvested last year. This week, Algeria bought 700,000 tonnes of optional origin wheat which excluded its traditional wheat supplier France and added weight to the selling pressure for Paris wheat futures. The tender results included Argentina, which highlights the competitiveness of Southern Hemisphere wheat for the second half of the season.

  • Russia increases its wheat production estimate

The Ministry of Agriculture of the Russian Federation revised its domestic wheat production estimate this week to 76 million tonnes after drying and cleaning, which is slightly ahead of most other estimates made to date. This presents a more comfortable supply situation for Russia's domestic and export markets and suggests that export quotas - which are expected to run from February to June 2022 - will not severely restrict the supplies available to the major importers. Reports have indicated that the quotas would limit shipments to eight million tonnes, although this is yet to be officially confirmed.

  • Wheat crops off to a good start

MARS (Monitoring Agriculture and Rural Sustainability), the EU crop monitor, has published its latest report reviewing winter drilled crops and is showcasing a generally positive outlook. MARS said planting was almost complete and that most crops had continued to benefit from favourable weather in the past month. However, there are concerns for later drilled crops in Romania, Bulgaria and Ukraine which could be vulnerable to frost. Northern and central Europe have enjoyed above-average temperatures and near-seasonal precipitation in November which was favourable for crop emergence and early development.

Analyst group Stratégie Grains has published its first balance sheet estimates for 2022-23, predicting production of 127.6 million tonnes of wheat compared to 129.3 million tonnes this season. With a slightly smaller wheat drilled area, it also sees lower yields and no repeat of this season's records in Romania and Bulgaria. Prevailing weather conditions will be the making of the crop, but Stratégie Grains has highlighted that it expects few fertiliser applications not to be done. Overall, it sees increased domestic use and 1.8 million tonnes less available for export (a total of 29.7 million tonnes), which won't be a great comfort for the world's major wheat importers.


BARLEY

  • Old crop barley values fall

Old crop barley values have trended lower on the week once again following weaker global and domestic wheat markets. Losses have not mirrored wheat in equal proportion as the discount to wheat has narrowed in most areas leaving question marks over barley demand in the ration for the second half of the season.

  • UK feed barley exports slow

Continued challenges with freight combined with weaker European grain prices has seen less interest in UK feed barley exports over the last week. The UK exported just over 60,000 tonnes of barley in October, taking the season's total to nearly 330,000 tonnes. Given the strength of domestic prices, feed barley exports have generally been limited to the southeast of England, but malting barley exports are continuing at a good pace with continued interest for 2022.

  • Old crop malting premiums at season highs

With feed prices weaker on the week, malting premiums are at season highs on old crop with malting barley values holding firm despite the threat of the Omicron variant of Covid-19 and renewed restrictions on social gatherings across Europe. Despite this, demand from maltsters remains with farmer selling slowing down heading towards the festive break. 


OILSEED RAPE

  • 2021 – a remarkable year

Traditionally, this time of year is a moment for reflecting on what has happened in the last 12 months and looking forward to what we might expect in the following year. Many marketing years can be a bit bland and unremarkable but this has certainly not been the case in 2021. Early this year, all the talk was about a demand surge in oilseeds as the world's economies were emerging from lockdowns and there was much talk about the very tight stock position on soybeans in the face of aggressive Chinese buying and a delayed South American crop. It was known that Europe was going to be heavily deficit in rapeseed supplies after last harvest and the UK produced the smallest domestic crop since 1989. The Canadian canola harvest was a disaster, surging energy prices gave the market a further nudge and fund money flooded into commodities as investors sought a hedge against rising global inflation. Everything was pushing in the same direction.

  • Rapeseed the outstanding performer

However, European rapeseed markets have gained over 80% since this time last year and 2021 crop prices domestically have gone up by almost £250/t. For the remainder of the old crop campaign, traders are focused on the imminent arrival of shipments from the bumper Australian harvest and the prospects for the South American soybean harvest which will become clearer over the next couple of months as the impact of dry conditions caused by the La Niña weather phenomenon becomes clearer. At some point, the various global oilseeds markets will reconnect but, given that over the last 12 months the US price of soybeans has gone up by only 17%, it would be unwise to presume that what happens to beans today will be reflected in rapeseed markets tomorrow.

  • Production seen rebounding in 2022

Now it is time to look forward to the prospects for harvest 2022. In the past, it has often been strategic to sell new crop forward on the back of high old crop prices even though this normally means accepting a discount. Currently, new crop seed is trading at a £150/t discount but the circumstances for a much better supply position for rapeseed, both in Europe and further afield, are already in place. The Agriculture and Horticulture Development Board (AHDB) Early Bird Survey sees UK plantings likely to be up by 13% while the well-respected trade journal, Oil World, is predicting that EU production will rise by over one million tonnes in 2022 to hit a five-year high. High prices are also expected to buy acres for spring-sown canola in Canada and it will be interesting to see how markets cope with the transition from the current extreme tightness into a much better supplied market in 2022/23. 


 PULSES

  • Exportable surplus of feed beans remains

Old crop feed bean values remain unchanged over the week despite the big falls in wheat values. The UK still has a lot of feed beans to sell in the new year to trade out of this year's exportable surplus. This demand is unlikely to come from the UK so will need to be priced for export.

Over the past week, the human consumption value of Australian food beans has fallen dramatically as news of large cargoes preparing to sail in December and January have put pressure on Egyptian prices. In the UK, we have become less competitive due to the rise in the value of sterling. The market is anticipated to remain very quiet until the new year, at which point it will be possible to reassess if UK food beans are still competitive.


 FERTILISER

  • AN/urea

Earlier this week, the Dutch gas price significantly increased for both spot market and April futures. This appears to be due to the tensions over the gas supply network within Eastern Europe and further afield. Given the nature of European gas supply into the UK, this has subsequently impacted UK gas prices over the last few days.

The current UK gas price is now nearly double the value that it was prior to CF Industries UK and the majority of EU production ceasing or reducing production in mid-September. As of Monday 13th December, CF have withdrawn from the market on its limited grade options. This is most likely due to the sharp increase in gas prices and would strongly indicate that when they re-enter the market, it will be with higher prices.

Recent import statistics for urea and AN estimate that the UK is down 10-19% year on year and that much of the planned import has not arrived within the projected timeframe . This further confirms and adds to the likelihood of a tight supply as we enter the new year.

Currently, all global urea buyers and sellers are subdued whilst the Department of Fertilisers for India prepares to announce its next purchasing tender; this is most likely to be over the coming days. Once this business has been concluded, the market will have a better forecast of urea levels in the UK for spring 2022.

  • UAN

There has been no change in the short term on UAN but a reaction is to be anticipated following any new UK AN levels becoming known in the coming days.

With the limited raw materials available for suppliers and subsequent reduced grade options, all liquid users would be well advised to secure spring volumes now.

  • PKs

Autumn-planted crops have fared well in the mild weather and suppliers are seeing an increase in on-farm enquiries and demand of PK's. The change is most likely due to growers' confidence in their crops. Any grower that is planning to apply PK's at their earliest opportunity post-winter should be looking at their volume now.


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