- Big crops get bigger?
There is an old saying that 'big crops get bigger' and it seems that it is true. This week well respected analyst, Strategie Grains' September report increased the size of the 2019 EU-28 wheat crop again to 144.5 million tonnes. This is 1.6 million tonnes up on the estimate they made last month and a hefty 17.6 million tonnes up on last year. The main reasons for this are production increases for France, now 39.48 million tonnes, and the UK at 15.8 million tonnes.
The larger EU crop means there is a larger exportable surplus that needs to be shipped and Strategie Grains estimate this reaching 25.7 million tonnes, almost 5 million tonnes more than was achieved last season.
To date EU export pace is behind that which it needs to be to meet this target. From the 1st July to the 15th September 5.1 million tonnes of wheat had been shipped. Although this is 1 million tonnes ahead of last year at the same time, this pace would leave the year end number 1 million tonnes short of the target.
- A week of busy international trade
The international market has been very active this week with many of the world's biggest importers securing fresh supplies. Algeria, Egypt, Turkey and Tunisia amongst others have all been buyers but their activity has had a limited impact on world market prices. Algeria bought 600,000 tonnes of optional origin wheat but this traditionally comes from France and will help eat into the EU surplus mentioned above. However, the competition in international markets is fierce highlighted by the Egyptian tender. Egypt bought 180,000 tonnes all from Russia. French offers were too expensive and, with a freight disadvantage to manage, suggests lower prices are needed to capture the export demand needed to meet target.
- UK market rallies on port demand
The UK wheat market continued to edge higher this week and by Thursday at their best London futures had managed to climb £6/ tonne above the contract lows seen at the beginning of this month. A need to fill a strong line up of vessels at UK ports is leading to keen demand for spot wheat supplies of various grades - feed, biscuit and milling. There is a rush to beat the possible 'no deal' Brexit which could impact with penal tariffs from 1st November for any UK exports to the EU. However, this run on prices has dented UK competitiveness for fresh sales and firmer sterling at the end of the week was not helpful
- Barley market dominated by exports
With the Brexit deadline looming exports of both feed and malting barley continue with vessels of all sizes loading or about to load the length of the UK. Feed barley cargoes are mainly heading to Spain and Portugal with a smaller number going to Ireland. Malting barley is heading to the usual destinations in mainland Europe. Feed barley prices have firmed a little this week as harvest has finished but shippers continue to require tonnage to fill ships as they arrive. The barley tender to Tunisia also gave the market a little spark for 24 hours but final traded prices did little to support UK current values.
- UK domestic markets remain quiet
Domestic markets for both feed and malting remain subdued as maltsters only buy when they can make malt sales. Similarly, feed compounders have taken some cover but seem happy to delay purchasing until they have made feed sales in most cases, even at these relatively low levels when compared to last season. The size of the UK barley surplus still weighs heavy on the UK market despite the current pace of exports.
- Premiums for malting barley limited
Despite the UK being the cheapest source of spring malting barley in Europe, new export sales are almost impossible to make as the nearby market is saturated. Spring malting premiums are minimal at best and non-existent in areas remote from malting outlets.
- Sterling strength
The value of sterling continues to act as a brake on our domestic market. The value of the pound has gone up 4% since the start of August. This week it has appreciated against the euro but prices are largely unchanged because of largely bullish market fundamentals. With so much going on over the next few weeks in the political arena this is likely to be the key area to watch.
- EU crop marked lower
The EU production figure for crop '19 continues to drop with a consensus now building round a 17 million tonne figure. This is about 500,000 tonnes less than estimates of a month ago and well short of last year's 19.6 million tonnes. Germany and France are the countries seeing the largest crop revisions downwards although the Baltic States have partially offset this.
- Import limitations
Increased imports into the EU are inevitable but problems with drought in Australia might curtail their ability to cover the European shortfall. In recent weeks their crop has been marked down by 400,000 tonnes which would give them a crop of 2.5 million tonnes. Demand is now switching to cheap Canadian canola where stocks are high and harvest is progressing. This seed is not suitable for all uses but it is likely to remain cheap given that China previously took 40% of Canadian production and now imports nothing from this origin.
- Larger crop indicates a market move lower
Bean markets have traded a little easier this week but have found support from buying into ports against pre harvest sales. Trade has been slowed somewhat by field work during this good spell of weather. Longer term, however, the market will need to cope with a much larger crop and the expectation is that prices will move lower, evidenced by the lack of carry into later positions. Last season, with large quality premiums available, many poorer lots were bought to process and colour sort to improve their appearance. This year similar beans, particularly winter varieties, are going straight into the feed market. Eventually the UK market will need the support of the compounder but there are few signs of this at current levels.
Following news of an oil price increase, we saw a rise in fertiliser enquiries this week. Suppliers are continuing to monitor the situation which is currently causing increases to freight rates rather than production costs. As we near the end of September we would expect the major UK suppliers to move prices upwards for deliveries in November and December, depending on Brexit and currency fluctuations. The next move will very much depend on where urea prices go next week.
Another Indian purchase was concluded this week for a total of 949,000mt, coming from various suppliers/traders. This will remove any surplus stock from the system and likely move prices upwards into the last quarter of the year. Only approximately one third of the usual urea business has been concluded in the UK so far this season. Keep in touch with your fertiliser advisor for the latest situation/prices.
As clear weather allows land work to continue at pace, thoughts turn to P and K off takes from harvest and orders for the new season. The market remains firm with blenders struggling to gain any advantage in the market due to currency levels.
In other news this week the new Polysulphate mine in North Yorkshire is facing financial challenges. The company said it was confident the project could be saved and that it would now conduct a six-month review to work out cost savings and would slow development of the project.
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