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- The USDA dampens markets
Late last Friday afternoon, the United States Department of Agriculture (USDA) published its September World Agricultural Supply and Demand Estimates (WASDE) report. It increased wheat production estimates for Australia, Canada and the EU, adding 4.5 million tonnes to world output, bringing the total prediction to 770.49 million tonnes and increasing season end stocks to 319.37 million tonnes. This is up almost 20 million tonnes on the year. Despite cutting 9.5 million tonnes from the US corn production estimate, the report triggered a spell of selling pressure in futures markets through to the middle of this week. This was due to the fact that the cut was anticipated by the markets.
- Egypt highlights rising world wheat prices
Egypt tried to take advantage of the lower wheat prices earlier this week and held a tender to buy wheat for November delivery. However, the offers received were all notably higher than the previous purchase Egypt made on 3rd September. The cheapest offer the country received before adding freight was a rarity from Poland. Egypt took up this offer and purchased three other cargos from Russia. Including freight, the average price paid was $9/t higher than Egypt's previous tender.
Strong demand from some of the primary wheat importers, including Saudi Arabia, Tunisia, South Korea and Japan, helped trigger a notable price rally for the world's futures markets on Thursday this week. Russia shipped 1.5 million tonnes of wheat during the first week of September and US wheat export sales reached almost half the USDA target, ahead of the five-year average.
- Dry weather in UK, EU and Black Sea
There are increasing concerns for 2021 winter wheat prospects as dry weather at above average temperatures continues across much of the UK, EU and Black Sea regions. Drilling conditions in the Ukraine are reported to be the worst for ten years, with much of the country in extreme drought. Forecasters say that soil moisture reserves are the worst seen for the past 50 years and, with little rain in the foreseeable future, this leaves winter drilling impractical. This season's wheat crop from the Ukraine is seen at almost 27 million tonnes; two million tonnes lower than last year as a result of dry conditions. This will leave the Ukraine with three million fewer tonnes to ship.
- Changes to EU balance sheets
Analyst Stratégie Grains made small revisions to its EU balance sheets this week, including for the UK, and highlighted the mixed fortunes for wheat harvests across the Union. Spain and Poland have enjoyed record production levels at 7.7 million tonnes and 11.9 million tonnes respectively. This compares to France which, having produced 29.64 million tonnes, has a total output that is 25% lower than last year.
Overall, wheat production is seen slightly higher than last month at 129.22 million tonnes, but this is still 18 million tonnes down on last year. This is also more than offset by a cut in EU maize production, which is down 2.5 million tonnes on last month at 64.92 million tonnes. This total is just above last year's production volume but, as the French maize harvest reaches 4% completion this week, its crop ratings dropped another point to 59% rated 'good' to 'excellent'.
- Grain sampling
This year we are seeing excellent premiums for quality wheat. In order for you to maximise the potential of the grain you have harvested, it is vital you have insight as to the variation that exists in any given heap. Please help us to match what you have to the most appropriate market by supplying samples which represent each heap in a logical and segmented way. We recommend analysing one sample per 50 tonnes of quality grain in order to give you the greatest chance of achieving the best marketing results. View Frontier sampling instructions here.
- Currency volatility brings export interest
Barley markets have remained volatile this week following last week's rally, with Brexit uncertainty weighing heavily on currency, which is once again the driving factor. Feed barley is comfortably holding its discount to wheat at approximately £40/t, but a weaker sterling has seen export markets close the spread. Exports are continuing out of the UK, mainly to the EU; however, attention is shifting further afield with the UK now more competitive to third country destinations (those outside the EU). There is also strong global demand for barley as well as wheat, with Tunisia and Saudi Arabia both tendering for barley on Friday. Saudi business, in particular, will be watched closely by many origins.
- Good yields as harvest progresses in northern regions
The need for the UK to export barley remains clear with good yields in the north of the country and Scotland, consolidating an exportable surplus of barley. Yields in these areas have ranged between 6-8t/ha while maintaining crop quality. Weather conditions have been favourable since the start of September, allowing harvest to reach completion in most areas as of this week. With spring barley representing around 75% of the total UK barley area of crop 2020, spring yields will be a crucial factor in determining the final crop size.
- Domestic prices up despite stronger sterling
Vegetable oil markets around the world have continued to be very firm this week with US soybeans, Canadian canola and Paris rapeseed futures all hitting new contract highs. Domestic prices into the crushers are up around £5/t from Monday morning despite sterling reversing its recent trend by strengthening 1.5%. This would normally have a depressing effect on our prices, so any upward move is an indication of how strong support is in the wider oilseeds complex.
- Aggressive Chinese buying
Post-lockdown demand recovery and sharply lower European production levels are factors that have supported markets in recent months, but these situations are well known and have already been reflected in prices. The developing story is undoubtedly the seemingly insatiable appetite for oilseeds by China. China is expected to import around 100 million tonnes of soybeans in 2020/21. At the start of September, US sales to China stood at 16.3 million tonnes, but this month a further 2.6 million tonnes has been confirmed. This is without taking into account the possibility of another five million tonnes being added to the total when 'unknown destination' beans, possibly headed for Chinese consumption, are included in the figures.
This is a phenomenal pace of buying in the short-term and may simply be a phasing issue rather than any indication of a shift in long-term demand. It's not clear what percentage of recent purchases has been for government stocks and the ultimate strategy of Chinese tendering is hard to interpret. It is clear, however, that oilseeds markets will remain well supported for as long as Chinese procurement continues at this pace.
Currently, we are seeing contract highs being achieved in Asian markets; not only on beans but also in bean oil, rape oil, and palm oil.
It has been a relatively slow week on the world markets with very little fresh news. The major urea traders are watching and waiting for the next move from China. Chinese-produced urea accounted for one million tonnes in the last Indian tender, with arrival required before 5th October. Sources in China are reporting major issues related to Covid-19 around transport and the loading of urea to ports prior to shipment. Failure to perform on the contract will force India back into the market to cover urea, with much of September and October tonnage already spoken for. Over the week, prices slipped $5-10/t but, with Brexit uncertainty in the UK, most of those gains were negated by sterling weakness against the US dollar.
Both UK major suppliers of ammonium nitrate are now working on October terms with current prices approximately £30/t over the June starting price. Farm gate interest is low as drilling next year's crops is taking priority.
Farm demand for PKs has grown this week as combines are put away for another year and harvest 2020 is put to bed. Firm wheat prices have been driven by a weakening sterling and thus the currency shift has upward pressure on fertiliser imports traded in US dollars or euros. Talk of possible MOP/TSP increases are expected, especially given the historically low prices we have seen in the last six months.
- Liquid UAN
In terms of liquid UAN, suppliers are watching currency and balancing the risk of offering forward prices, especially with the Christmas Brexit issues and the spring supply offer.
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