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- Markets slip on improved production outlook
World wheat markets have slipped 2-3% lower this week following better than expected wheat crop estimates from analysts for many of the world's primary wheat exporters: the US, Russia, Ukraine, and the EU.
Much of the US wheat belt has stayed dry for several months but recent snow and rain has proved beneficial. Weekly crop ratings were 'good' to 'excellent' for both Oklahoma and Kansas which were up four points to 57% and two points to 38% respectively. More rain is due with significant storms forecast to arrive.
Analyst SovEcon has increased its 2021 Russian wheat production estimate from 76.2 million tonnes to 79.3 million tonnes, which demonstrates the benefit of a generally mild winter. However, crop losses from damage caused by recent ice sheets are yet to be counted. The Ministry of Agriculture of the Russian Federation has reported that 25% of the country's winter wheat was 'poor' to 'very poor' compared with just 3% receiving the same rating at this time last year. The Ukrainian Hydrometeorological Center has reported that 98% of its winter wheat was in good condition.
The EU crop monitor MARS increased its yield estimate for the 2021 EU wheat crop to 5.89t/ha; this is up from 5.7t/ha last year and, if achieved, would be 3.5% above the five-year average.
Analyst Stratégie Grains left its 2021 EU-27 wheat yield estimate unchanged on last month at 5.93t/ha. The German cooperatives said German wheat crops had fared well over winter and avoided any damage.
- China makes another raid on US corn
The United States Department of Agriculture (USDA) has stated that at the end of this season China will hold over 196 million tonnes of corn, which is more than two-thirds of total world corn stocks. This represents almost 68% of Chinese annual domestic consumption. However, China has continued to import 24 million tonnes of corn this season. This week, the country purchased a further 3.8 million tonnes of US supplies*. This is the second week of significant US corn buying by China since the beginning of the year. The country had previously secured six million tonnes during the last week of January.
Prior to this week's sales, the US had already sold 92% of its 66 million tonnes of exportable surplus and there are still 24 weeks of the marketing season remaining. US end season stocks are seen falling by ten million tonnes on the year, leaving an exceptionally tight balance sheet. This reinforces the reasons speculative funds hold near-record long positions in the Chicago Board of Trade (CBOT) corn futures market. The bears will argue that only 50% of the sales made have been shipped and that some of the outstanding sales could be cancelled. However, there will be production issues in Argentina following drought and in Brazil following delayed planting.
In its March World Agricultural Supply and Demand Estimates (WASDE) report, the USDA left its corn production estimates unchanged for these major exporters. Perhaps the Chinese buyers see things differently and have bought the US supplies while they remain available. South American production prospects will remain a key grain price driver over the coming weeks.
*The initial version of this report quoted three million tonnes but this has been updated following a tender of 800,000 tonnes made after publication. The accompanying audio report was correct at the time of release.
- Slim demand for old crop feed barley
Old crop feed barley has struggled to find demand both domestically and on the export market to the EU over the past week although there has been demand from North Africa. Both Tunisia and Algeria are tendering for April/May shipment but firmer freight rates and both a strong sterling and US dollar means this is likely to be executed from the Black Sea. Compound interest has been fairly muted for feed barley despite a weaker market, but barley is maintaining its significant discount to feed wheat.
- Spring drilling stalled by rainfall
Showers for most parts of the UK has meant that spring drilling hasn't been able to progress further over the last week. However, the pace of drilling is expected to pick up from next week, including in northern regions. New crop feed barley prices have fallen in line with other commodities whilst the discount to wheat remains much smaller than for crop 2020 at between £15-18/t depending on location.
- Market volatility due to unpredictability of vaccine rollout
Global markets are poised to react to the easing of lockdowns and the rollout of vaccines as they occur around the world. Markets are volatile and this is likely to last for the short/mid-term until the pandemic situation stabilises.
- Sharp drop in domestic prices
This week has seen a sharp correction in domestic rapeseed prices with old crop markets shedding £15/t and new crop about £10/t. Prices have been pulled lower by a 5% fall in Paris futures values but this is not a sign that traders have been selling all global oilseeds markets lower. US soybean futures are close to unchanged over the same period and the weakness in European rapeseed markets is more likely to be a short-term cooling off in a market that was almost 30% higher at the start of this week compared to values at the start of January.
- More certainty in global markets
In global oilseeds markets, the biggest unknown remains the size of the Brazilian soybean harvest. The extent of Chinese demand is no longer a surprise to the market, although what the impact of African Swine Fever since December will have on pig numbers and subsequently on the market is difficult to estimate.
The US is going to be going into next season on 'bare boards' in terms of soybean stocks given that its export volume is already sitting at 99% of the forecasted volume for the whole season. It's not yet known how many soybeans will be planted in the US this spring but, with corn prices also riding high, the market is unlikely to see any big surprises unless the weather intervenes. There is more certainty appearing in the balance sheets but the lack of confidence surrounding Brazilian crop, which is now 50% harvested, is unusual in the second half of March.
- Size of Brazilian soybean crop remains big unknown
Crop estimates for the Brazilian soybean harvest vary between 128-136 million tonnes. This is a massive range and the outcome could prove to be a game changer. It is difficult to feel confident that the upper end of the range estimates could be achieved given the poor crop conditions going into harvest, the wet weather during harvest and reports of field abandonment, particularly on late sown crops in northern Mato Grosso. However, confirmation in the next few weeks of a crop close to the bottom end of the range could once again reignite the world's oilseeds markets.
- Lack of demand for old crop beans
Old crop bean values have fallen £5-8/t over the past week due to lack of demand and many more farm parcels than expected coming to the market. There is still some demand for delivery for May through to August but with values of other protein sources falling rapidly buyers are waiting before making any further commitments. With sterling remaining firm and minimal demand on the horizon, values can be expected to fall further over the coming weeks.
- Prospect of a much larger new bean crop
New crop bean values have also come under pressure over the past week due to the prospect of a much bigger crop than last year. Winter beans in all areas have come through the winter well and are now putting on spring growth and looking far better than at this time last year. Spring bean drilling continues into dry and well cultivated seed beds and, although a little cold, the crop prospects look far better than last year.
This week sees India return to tender for the next instalment of its urea requirements. The tonnage is thought to be in the region of 1-1.2 million tonnes. The market awaits bids but recent prices indicate strong demand and some production issues possibly leading to a further strengthening to come. North African granular urea remains around $400/t freight on board (FOB) and at these levels it's difficult to see any new cargoes coming into the UK by this spring or even early summer.
Ammonia values have strengthened further this week. However, on a domestic front, larger imports over the first quarter of 2021 than seen in January 2020 have led to a small reset in UK nitrogen values as a result of stronger stock positions. Recent changes have led to nitrogen trading between £5-10/t lower, which is down from January levels for spring deliveries. It remains to be seen if imports are actually in stock in the UK or on farms.
Potash and phosphate prices remain firm. The market is seeing stronger spring demand coupled with low stocks, particularly for potash and polysulphate based products due to import constraints. Supplier lead times are currently up to one to two weeks for new orders and with the application window narrowing for getting fertiliser onto crops, Frontier continues to advise growers to buy requirements now.
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