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There were few developments in the wheat market this week, with attention remaining focused on the Russia-Ukraine conflict. Next week will mark one year since the conflict began and this has seen London wheat futures reach their highest level since the 24th March.
Russia has been seen increasing its military activity in eastern Ukraine, which has caused shorts to take cover. There is concern that the Black Sea Grain Initiative, which creates a safe passage corridor for grain shipments through the Black Sea, may not be renewed in March. Russian officials have criticised the agreement, saying that Western sanctions are preventing Russian exports. Russian Deputy Foreign Minister, Sergei Vershinin, has said that it would be "inappropriate" to extend the agreement unless sanctions affecting its agricultural exports are lifted and other issues are resolved.
Some Asian importers are now specifying that they will not accept wheat from Russia or Ukraine and are saying that claims of 'force majeure' as a result of the conflict will not influence them to accept Ukrainian corn.
Meanwhile, Ukraine has called for larger vessels to help increase the speed of its shipments. It has offered 11.5% milling wheat at $300/t FOB, which is around about $30/t under German offers for 12% protein. However, with Asian countries excluding Black Sea supplies from tenders, the Philippines bought Australian feed wheat at a price premium to Black Sea milling values.
Despite the comments from Russia on Western sanctions preventing exports, analysts see Russia shipping 3.6 million tonnes of wheat in February, which is just 100,000 tonnes behind January shipment estimates. This is indicative of continued aggressive pricing helping exporters to capture a significant market share.
Ukraine may struggle with its 2023 crop output according to First Deputy Farm Minister Taras Vysotskiy, who has said domestic fertiliser is in short supply. Domestic producers are only able to supply around 20% of their normal volumes due to the conflict. Imported fertiliser supplies have provided replacement to a degree but the official explained how less fertiliser impacts on yield potential. The economy ministry has estimated the 2023 Ukrainian grain crop could still reach 49.5 million tonnes, which compares to 51 million tonnes in 2022. However, producer organisations see production notably lower at between 35-40 million tonnes.
Yesterday, Russian officials said 95% of the country's winter crops are in good to satisfactory condition ahead of spring sowing. This figure was previously 98% but comments from private analysts have pointed to damaging ice sheets on winter crops. A reasonable post-winter assessment of crop potential will be possible in a few weeks' time. Meanwhile, dryness across the European continent is an increasing talking point and potentially problematic.
Indian officials are optimistic for the country's wheat production potential with their latest estimate at a record 112 million tonnes, which is up from 107.74 million tonnes last year. The current wheat export ban remains in place and is likely to be maintained until yields are properly assessed during the harvest which begins next month.
Meanwhile, the Attaché Report from the United States Department of Agriculture (USDA) has placed the Indian 2022/23 crop at 100 million tonnes, which is 7.74 million tonnes below figures cited by Indian officials. This may explain why the Indian government was recently obliged to release stocks from its strategic reserves as domestic prices soared to new record high levels amidst an old crop shortfall ahead of the new harvest.
The domestic feed market remains quiet this week, with barley prices remaining largely flat. The trade short covering that was apparent last week had concluded by Tuesday's session and the longer-term downtrend resumed. Farm supply remains subdued, which is consistent with last week. This could continue into next month as the spring barley crop is planted. Domestic demand also remains, with first-hand consumers being well covered for the foreseeable future, although there is some demand present in the export markets.
No domestic demand has been forthcoming this week for malting barley. Any export demand is limited to April, May and June. There is more malting barley available for export which has been slow to come forward. This supply should be seen coming online at the end of March when farm contracts have been loaded. Looking towards new crop, there are buyers at £30-40/t over feed barley. However, farmers in recent years have been quite conservative in selling flat price malting barley, which means growers aren't interested in selling until the crop has been in the ground for a couple of months.
This week, the primary focus for oilseeds traders has been the weather conditions in South America. Brazil is now progressing through its delayed soybean harvest which stands at around 15% complete on a crop size that some are estimating at over 150 million tonnes - a record for the country. Whether this crop size will be realised will depend partly on the weather remaining fair and favourable for harvest progress. As the harvest picks up pace, beans will flow onto the market which could cause some price pressure. Conversely, Argentina is seeing continued droughts on its developing soybean areas which is hampering yield prospects further. The total South American crop is still set to be large, but the market will remain firm whilst trade flows are disrupted.
Conditions for developing rapeseed have been largely beneficial throughout Europe to date. There is mention of dryness starting to impact French crops; however, there is no immediate cause for concern. However, uncertainty has arisen over the security of the Black Sea grain export corridor following increased Russian military activity in Ukraine. Markets are concerned this may disrupt the flow of rapeseed to market. Unfortunately, this situation will remain a factor of new crop oilseeds markets for some time to come.
Elsewhere in new crop markets, there are no immediate concerns with crop conditions strong and a large carryover to help fill any harvest positions.
This week has been a quieter week for urea and ammonium nitrate (AN). Granular urea values remain stable with offers relatively unchanged week on week. The only impact on pricing comes from exchange rates, but this is minor.
Domestically, AN values are stable. However, there is little buying activity as growers use what supplies they have for their initial top dressing. Long-term views show some forward weakness on both urea and AN products.
UK gas prices are currently around £1.36/therm and EU gas prices are around €52.70/MWh. These prices are now the same as they were in August 2021. With the advent of spring and warmer weather, futures values may drop further. However, developments in the Russia-Ukraine conflict and the emergence of new policies may have a significant impact going forward.
As spring conditions prevail, applications of nitrogen and nitrogen sulphur grades will increase in volume across winter cropping in most regions. Growers can be reassured that there is security of supply through the spring season following on from last week's reports of a large UAN vessel arriving at port in the UK. With planting of root crops imminent or already underway in some cases, growers with a requirement for nitrogen phosphate starter fertilisers should talk to their Frontier contact for information on the grades available.
Buyer activity has increased significantly in the past week and delivery scheduling should remain the primary priority for growers. Supplier stocks are tight and current lead times are typically three to seven weeks depending on grades.
Potash markets remain stable for the time being and phosphates are still showing long-term weakness; however, any drop in values will not be reflected in the short term.
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