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- Volatile US wheat futures
This week has seen volatile trading on US Chicago Board of Trade (CBOT) wheat futures caused by rumours of US wheat sales to China along with further cuts to wheat crop estimates for some of the major producers.
CBOT wheat futures hit contract lows ahead of the Stocks and Acreage Report from the United States Department of Agriculture (USDA) which was published on the 30th June. However, an unexpected cut of 600,000 acres in the planted wheat area, and therefore the lowest US wheat area since records began, triggered a positive turn for the market.
Rumours that China had bought two 60,000t US wheat cargoes saw the US market rally 4% higher on Wednesday. Earlier in the week, the US made its largest single daily sale of corn to China of 1.76 million tonnes of wheat.
There was no confirmation of the wheat sales that caused CBOT futures to lose some of their gains, but they remained at their highest level since the end of April 2020 and are still 60 cents up on their end of June low. This represents a 12% price gain.
- Further cuts to Russian wheat production
The first cut fields in southern Russia were reported to be 26% down on last year. However, with harvest progressing, yields are improving and now reaching almost 20% complete. The average has improved to being 13% down on last year.
This has lead the Institute for Agriculture Market Studies (IKAR) to cut its latest Russian wheat crop estimate by 1.5 million tonnes down to a total 76.5 million tonnes. This is in line with USDA predictions but ahead of estimates from the Ministry of Agriculture of the Russian Federation, which places its prediction at 75 million tonnes. Higher yields are now being reported in the Volga valley - the second largest wheat region - at 2.6t/ha. This is 66% up on the year. However, the weather forecast for Siberia, which produces the largest spring wheat area, is not ideal, with forecasts of dry weather for the next two weeks.
- EU-28 crop estimates lowered
In its July report, analyst Stratégie Grains made further cuts to its soft wheat crop estimate for the EU-28. It now estimates the crop will reach 130.3 million tonnes, which is 600,000 tonnes lower than predicted in its June report. This is mostly because of a 130,000ha cut in the French wheat growing area, bringing the area total to 4.45 million hectares in comparison to five million hectares the previous season.
French soft wheat production is now seen at 31.59 million tonnes, which is eight million tonnes down on last year. Overall, the EU-28 is 17 million tonnes lower than 2019/20. Prospects for Germany are more encouraging, however. Analyst Agritel predicts that Germany will produce 21.6 million tonnes of wheat. On the other hand, the estimate from Stratégie Grains stands at 21.77 million tonnes, which is just over one million tonnes down on last year.
- Southern regions achieve highest quality barley crop
It has been a slow start to barley harvest around the country, with scattered showers limiting progress. At this early stage of harvest, it is clear that there are likely to be significant regional differences impacting barley yields and malting barley quality. To date, the best crops are from south of the M4, with crops becoming more variable moving north. Based on the current weather forecast, we would anticipate good progress to be made over the weekend and throughout next week.
- Feed barley prices plateau
Feed barley prices failed to rise with wheat prices this week despite export values being supported by a weaker sterling. The market is waiting in anticipation of the results of the 720,000-million-tonne Saudi Arabian barley tender, with results expected Monday. These results are likely to give some more direction to global barley prices.
- Buyers of malting barley hold fire
It has been a very quiet week for malting barley. Premiums are hard to establish as domestic buyers are well-covered for the season in light of extra barley stocks being rolled into this year and as a result of the decline in demand following Covid-19. Many buyers will wait to see the results of the large UK spring barley crop before making any procurement decisions.
- EU production declining
The EU rapeseed market looks unusually complex as we head into the new 2020/21 campaign. The demand side of the equation over the years has been pretty stable, but recently markets have taken the twin shocks of a plummeting crude oil price and a significant drop off in volumes into the commercial vegetable oil sector during the Covid-19 lockdown. On the supply side, production in the EU has been on a steady decline since harvest 2017 and is forecast to be only 16.46 million tonnes from harvest 2020, which represents a 25% drop over the past three harvests.
- Higher imports required in 2020/21
The drop in supply should simply equate to an increase in demand for imports. However, the situation is more complex than that. The EU is likely to need to import an extra quarter of a million tonnes in 2020/21, but the Ukraine, a major supplier in recent years, is faced with a reduction in its output of around half a million tonnes.
Australia is an obvious candidate to fill this gap. Production in the country is forecast to be up 30% at a total of 3.2 million tonnes. However, this is far from certain given Australia's unpredictable weather and the fact that supplies will not be available until early 2021. This leaves Canada as the potential key supplier in the early months of the new season.
- Canadian difficulties
Canadian crop conditions are currently favourable, with analysts predicting an increased output of 800,000 tonnes from a slightly reduced planted area. Current estimates point to an EU import requirement from Canada of around 1.9 million tonnes. However, there is considerable uncertainty surrounding this situation. This is due to a number of factors, including the unresolved trade conflict between China and Canada, the difficulties associated with the genetically modified status of Canadian canola, and the recent move by the French to ban the use of Clearfield herbicide resistant rapeseed varieties from next month onwards.
France imported almost one million tonnes of Canadian canola in 2019/20 and, in its current format, the new rules would have a significant impact on future trade flows from this origin. It remains to be seen whether the current legislation will be revised over the coming weeks.
- Markets remain stagnant
The new crop bean market remains very quiet as farmers are still concerned about the impact of the various weather extremes the growing crop has endured. At the same time, export buyers are very reluctant to make further purchases due to the big crop forecast from Australia and the Baltic states. The most notable feature is that bean values and wheat futures prices have become disconnected, meaning despite a rise in wheat values this week, beans have drifted lower. This is expected to continue as we approach harvest and find out more on bean yield and quality.
There have been no significant changes in UK fertiliser markets this week, with demand remaining slow as harvest 2020 continues in parts of the UK. Ammonium nitrate producers are watching and waiting for the next move in the urea markets. An announcement is expected shortly on the latest Indian tender with a possible purchase of one million tonnes to be shipped in August. Actual volumes will depend on the appetite from China to supply whilst their own domestic demand is low.
Other urea producers may struggle to supply the total volume in the timeframe. India will likely revisit the tender process again in the coming weeks and months. UK ammonium nitrate values remain very competitive against urea offers but the focus is moving to harvest on UK farms.
The outlook on phosphate and potash values is relatively flat, with current values also at medium-term historic lows. However, currency and short-term supply issues around Covid-19 production interruptions should be monitored as we move into the autumn and winter. Gas prices are also worth keeping an eye on as winter approaches.
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