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- Rain falls but so do wheat prices
Prolonged dryness has been adversely affecting wheat crops in the UK, northern Europe and the Black Sea region. This has helped support world wheat prices in recent weeks. This week, however, saw a change to weather patterns as low pressure systems sweeping in from the west brought much needed rain and relief to stressed winter and spring wheat fields. Confidence that notable yield losses may have been avoided triggered a wave of selling on futures markets. Buyers stood aside and prices dropped to eight-week lows.
It remains to be seen how beneficial this rain has been. Dry weather is set to return next week and amounts of rainfall received have varied widely. Even in the UK, the north of England has seen a fraction of the rainfall received in the south. Southern Russia, the main winter wheat producing region of the country, has not yet seen any measurable rain, although it is forecast to rain next week.
French crop ratings published ahead of a public holiday last Friday measured a further deterioration in the condition of its winter wheat. Ratings fell one point on the week to 57%, which is rated 'good' to 'excellent'. This compares poorly with this time last year when conditions were at 79%. It will be important to see how ratings fare next week and if the rain in France has proved beneficial.
- US corn planting surges ahead
In contrast to last spring, US farmers are enjoying mostly fine corn drilling conditions, which was highlighted by the amount planted last week. It managed to get 20% of the intended corn area into the ground, with total planting rising to 27%. This added to the bearish wheat market sentiment as US Chicago Board of Trade (CBOT) futures dropped close to $3 per bushel. In a recent report from the United States Department of Agriculture (USDA), US farmers signalled their intention to increase corn planting by over seven million acres and this fast start to the drilling season would suggest that this is possible. Meanwhile, one of the US's primary markets – ethanol production – dropped to its lowest since 2008 due to the impact of coronavirus on fuel use.
- US wheat faring poorly
US winter wheat crop ratings fell from 57% to 54% rated 'good' to 'excellent' this week. This is down from a rating of 64% this time last year. Ratings are still above the five-year average, but it would seem less likely that crops will achieve above-trend yield considering the first crop ratings suggested at the beginning of April may be possible.
The wheat area in the US is estimated to be the lowest on record. Drought conditions are expanding in Kansas which is one of the primary winter wheat producing states. The latest drought monitoring maps highlight an increase in the abnormally dry area which rose to 38% from 23% last week.
- IGC highlight demand issues
In its latest monthly report, the International Grains Council (IGC) cut world wheat production by four million tonnes due to dry weather in Europe, Russia and Ukraine. This brings the total figure to 764 million tonnes. However, this drop was offset by a Covid-19 related five-million-tonne fall in demand, which brought the total to 755 million tonnes. There was a similar drop in trade.
The ICG predicts world wheat stock will rise by six million tonnes to 289 million tonnes, which would be an annual increase of ten million tonnes. However, stocks for the world's primary exporters are predicted to drop three million tonnes on the year to 64 million tonnes. This is a notable 19 million tonnes less than it was three years ago.
- Rain still required in northern UK
Many parts of the UK have now seen a decent first rain on spring crops, which has been the most bearish feature to the barley market this week. Rains for northern Europe and the Black Sea have also weighed on the market with any drought story redundant for the time being. Northern England and Scotland have missed most of the rainfall and will be hoping to receive some in the next week.
- Covid-19 continues to impact market
The impact of demand destruction on the malting barley market continues. The great uncertainty that the market is trying to forecast is when lockdowns will relax and also if and when the public will return to their normal social drinking habits. Different brands are being impacted to different degrees depending on their sales portfolio of on-trade versus off-trade. Supermarket sales of beer are increasing, but not offsetting the loss in demand from the on-trade market. Small craft brewers are likely to be the hardest hit.
Covid-19 is also creating plenty of uncertainty in the livestock sector with prices falling as a result of food service closures. With the inability to predict what will happen in the near future, many are deferring buying feed forward. This, in turn, is limiting the domestic compounders' purchasing requirements. A firming in sterling this week has also not helped UK barley's competitiveness against other origins.
- Prices stabilise
It has been a much quieter spell for oilseeds markets this week with European rapeseed futures ending a shortened week unchanged. There has been little shift in the value of sterling and physical UK rapeseed prices are just a couple of pounds weaker. As markets struggle to move on old news, oilseed prices have reached a point of equilibrium between the demand destruction caused by Covid-19 and the collapse in crude oil values and the supportive news of global output shrinkage due to poor weather conditions.
- South American production pared back
Estimates of South American soybean production continue to reduce. At the start of the year, output was forecast to be up by as much as nine million tonnes year-on-year, but now the increase is expected to be closer to one million tonnes. Dry weather in key US states is helping with corn and soybean plantings, but recent dry weather in the EU prompted Oil World to predict that the EU rapeseed crop will fall to a 14-year low of 16.7 million tonnes. However, Oil World has also forecast a drop in EU rapeseed oil production of 0.7 million tonnes, which implies a drop in demand for seed of around 1.7 million tonnes.
- US/China tensions escalating
Another situation worth watching is the increasing tensions between the US and China. The week started encouragingly with confirmation of six more cargoes of US soybeans sold to China, but this still leaves almost half a million tonnes per week to be put on the books before the end of the season in order to hit the USDA's export target and avoid a further stock build. Prospects of achieving this have not been helped by President Trump accusing the Chinese of creating the Covid-19 virus in a laboratory in Wuhan and therefore claiming compensation for the cost of the pandemic to the US economy.
- Timely rainfall gives crop pulses new potential
All eyes are now focused on the potential of new crop pulses following timely rainfall in most areas. Winter beans are coming into flower in the south and, for those that have been drilled into good conditions, the crops have even better potential. They should now be able to withstand later drought conditions.
Spring crops are very susceptible to adverse growing conditions and timely rain will always be needed. The UK crop certainly has the potential to be 20% larger next year. Furthermore, as values are still holding up well in comparison to the poorer values of wheat and barley, it is a timely opportunity to start marketing new crop beans.
Rain has arrived in most areas which should get spring crops moving once they get hold of the recently applied fertiliser. The only major change this week was on nitrogen. This was from Yara, who have revised their Granular 33.5% AN back in line with Nitram.
Otherwise, the market remains quiet. However, demand is expected to return from both the grassland and arable sectors next week following the rains. There continues to be some discussion around what might happen in June regarding new season prices, but it remains too early to say. Normally, we see some early urea offers at this time, but with so much uncertainty this year, the market remains quiet.
- Foliar nutrition
Crops such as oilseed rape and winter wheat may be struggling to take up sufficient nitrogen this year, given the weather this season. Foliar nitrogen is a good way to boost the nutrient in these crops to keep them going in this dry spell. Oilseed rape has especially benefited from foliar nitrogen applied onto the green canopy, leading to increased yields.
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