- Adverse weather supports UK prices
The Agriculture and Horticulture Development Board (AHDB) published their first provisional UK wheat supply and demand estimates for the 2019/20 season this week. The balance sheet contains the first production estimate from the Department for Environment, Food & Rural Affair (DEFRA) – 16.283 million tonnes – and signals a significant exportable surplus. On paper, the UK will need to ship up to 2.9 million tonnes of wheat to avoid a burdensome stock carry over.
Sterling volatility amidst the Brexit uncertainty is playing a major part in our competitiveness in export markets. Logistically, with also around 2 million tonnes of barley to ship, executing this wheat volume will be challenging and could weigh on prices. However, the ongoing wet weather is preventing farmers from planting wheat across the whole of the country and, if this situation continues, the 2020/21 balance sheet could look very different to this season. Additionally, the London new crop wheat futures for November 2020 are trading £4–£5 above old crop May 2020, and the market is working to encourage this season's surplus to possibly meet some of next season's demand. Meanwhile, across the English Channel, the French are faring better. Winter wheat drilling has jumped to 21%, up from 4% last week, although it is still a long way behind the 32% it was at this time last year.
- Export demand lifts world markets
The international wheat trade has been very active in recent weeks and strong demand has caused world prices to rally. This week, Egypt bought another 405,000 tonnes for delivery in November, which was mainly Russian with a cargo from both France and Ukraine. The average price paid was $231, which was a notable $10 higher than their previous purchase made on the 8th October. EU wheat exports are now running 40% ahead of last year and Ukraine is in a similar position. Ukraine has shipped 9.9 million tonnes of wheat already this season, compared with the 6.7 million tonnes it had shipped by this time last year.
- Australia drought
This week, National Australia Bank (NAB) highlighted how severe the ongoing drought conditions have been for their country with a commentary on the impact it is having on crops. Its latest wheat production estimate has fallen to just 15.5 million tonnes compared to the United States Department of Agriculture (USDA) at 18 million tonnes. Three years ago, Australia produced a record crop of almost 35 million tonnes. Drought and heat in the Southern Hemisphere is also impacting on Argentina where the Buenos Aires Grain Exchange sees potential wheat yield losses of up to 40%, with no rain expected in the immediate future.
- Brexit uncertainty continues to affect barley prices
As a result of the Brexit developments, both feed and malting barley prices have been pulled and pushed as the exchange rate has fluctuated throughout the week. The UK continues to export feed and malting barley at a good pace. However, at the time of this report, the uncertainty over trade to Europe after October remains and the UK still has significant surpluses of both feed and malting barley.
- Challenging sowing conditions could trigger a rise in spring barley
The challenging sowing conditions continue to frustrate many growers and, as the end of October looms, some are considering not planting winter barley. It is likely that we will see an increase in spring barley being planted instead. As a result of this, spring barley seed could get very tight so it is advised that growers get their seed requirements covered early to avoid disappointment.
- Frontier contracts for next season
Looking forward to next season, Frontier is offering a range of contracts to help growers manage the risk of winter and spring malting barley crops. These contracts include pools, minimum premium contracts and futures-related distilling schemes. For more information, please contact your local farm trader.
- Exchange rate woes
Domestic rapeseed prices have slumped this week, whilst sterling has surged in value in response to the latest news on Brexit. The 2% appreciation against the euro has lowered prices by £7 per tonne, in line with the falling cost of imports. However, the UK market is expected to remain tight, with demand held up by good crush margins and early concerns about prospects for the 2020 rapeseed harvest.
- EU import challenges
European markets continue to be supported by dwindling Ukrainian supplies, the well-documented drought in Australia and cold, snowy weather during harvesting in Canada. Given their difficulties with their traditionally Chinese market, Canada is an obvious alternative supply route but European crushers face a challenge when marketing the meal produced from genetically modified Canadian canola. The cost and availability of imports will continue to be the key to European pricing.
- Premiums under pressure
Bean markets continue to drift in price, with demand into export homes in East Anglia being readily supplied and the availability of cheap French feed peas ensuring that domestic compounders are not having to pay up for supplies. Even the human consumption market, which was rampant this time last year, is feeling tired, with exporters having to be increasingly careful on quality.
The smaller premium structure this season is making it less economic for traders to pay processing costs on the more marginal bulks. Longer term prospects for bean prices are not great, with few bids to be found in domestic and export markets beyond the turn of the year. As a result, there is little carry in the market and few reasons to hang onto remaining stocks.
The main news this week has been that CF Fertilisers announced it would be withdrawing their current offer at the end of the week (18th October 2019) and will look to release new terms once the situation is clearer regarding Brexit and any potential impact from tariffs and currency fluctuations.
A recent Indian tender was fulfilled, mainly by Chinese product, leaving some oversupply with North African producers.
Urea imports into the UK are behind this point last year, and importers will be looking to organise new offers shortly in order to supply in time for usage in the spring.
Values continue to be largely influenced by currency rates and availability before Brexit. In summary, fertiliser values have stalled in anticipation of further news from Westminster next week.
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