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- Russian wheat crop keeps getting bigger
One of the major bearish influences for the world wheat market is the increasing production prospects for the Russian wheat harvest. In any normal season, the best yields are seen in the south where harvest begins, and the yields fall as the harvest progresses northwards through the country. This year, however, southern Russia endured prolonged drought and heat, leaving early yields 27% down on the year and raising concerns for overall production. However, in contrast to other seasons, yields continued to improve throughout the harvest. Many of the central and Volga regions enjoyed ideal growing conditions and reported record yields. This prompted analysts to increase their production estimates this week.
The Institute for Agricultural Market Studies (IKAR) raised its estimate to 82 million tonnes and APK-Inform also raised its prediction to 79.2 million tonnes. These are both ahead of estimates from the United States Department of Agriculture (USDA) which published an estimate of 78 million tonnes in its August World Agricultural Supply and Demand Estimates report.
However, average yields are now decreasing as the spring wheat harvesting begins. Many of these crops have been impacted by prolonged periods of hot dry weather conditions. It seems likely that Russia will still produce its second highest wheat crop to date, behind the record 85 million tonnes produced in 2017.
- China buys more French wheat
Paris wheat futures have struggled to gain more than a euro in value this week despite news that traders have sold twelve Panamax vessels of French wheat to China since the 1st July. This represents approximately 700,000 tonnes and it is thought up to one million tonnes may have been sold.
Last season, France sold 1.6 million tonnes of wheat to China, taking advantage of the deepening trade dispute between China and Australia. However, a cap on Chinese quota allowances might prevent that much being sold again this season. The depleted 2020 French wheat crop, which is 10 million tonnes down on last year, has inflated French wheat prices, leaving France's wheat uncompetitive in its traditional export markets. One of those is Algeria, which purchased 540,000 tonnes this week, thought to be supplied from Baltic countries.
- UK wheat harvest grinds to a halt
The UK wheat harvest approached 50% completion at the end of last week, but adverse weather since has brought combining to a halt across the whole country. Winter wheat yields so far have ranged from unchanged to 50% down on last year's average. Coupled with a harvest area 25% down on the year, it is entirely possible that the total UK wheat crop will be little more than half of what was achieved in 2019.
There are fears that wet, warm weather conditions could spoil the quality of the remaining ripe standing wheat crops, which will lead to greater shortages of milling and biscuit grades, bringing additional challenges to the domestic supply trade industry. These circumstances are unprecedented in the past 40 years and are the result of extraordinary weather conditions that have broken rainfall, heat and drought records in recent months.
Those farmers with wheat to market have been able to take advantage of this tight supply situation and lock into high prices that are at a premium to the cost of imported supplies. This is highlighted by offers made to Pakistan this week, which tendered to buy up to 1.5 million tonnes of wheat. The cheapest offer it received was the equivalent of $194/t free on board, not including sea freight. This is approximately £148/t in sterling. This puts into perspective the current UK ex-farm feed wheat values compared to world market prices.
- Wet weather halts harvest progress
This week's unsettled forecast has halted any harvest progress across the UK with much of the spring barley area currently standing wet in the field. Ten days ago, the Agriculture and Horticulture Development Board (AHDB) pinned spring barley harvest progress at 12% and, given the unsettled weather since then, the UK is unlikely to be much more than 20% harvested to date.
Most of the harvesting has been concentrated in the south and in East Anglia where yields have been slightly better than expected given the tough spring conditions crops endured. Nitrogen levels have been high, particularly in East Anglia. With harvest yet to find any pace outside of these areas, spot opportunities have arisen for feed barley, particularly into the north west, with both compounders and trade shorts hungry for barley to meet short-term demand. Meanwhile, markets for low nitrogen malting barley have also developed. The focus of the trade going forward will very much be on the quality of the spring barley harvest as it gets back underway and begins its progress north.
- UK exports heading to the EU
UK exports are continuing to the EU but at a far slower pace than in crop 2019. Exports have generally been limited to northern Europe, with a greatly reduced import demand from Spain and Portugal this year due to a much larger domestic production.
Domestic production has also been forecast higher this week in key global exporters such as Canada and Australia. Australia will be seeking alternative markets, considering its exports will not be heading to China, which usually accounts for 70% of the country's barley export demand. This will give the UK plenty of competition for any third country business, alongside barley competition from Black Sea origins.
- Early season tight markets
The domestic rapeseed market continues to be resilient with prices set to end the week a little higher than where they opened on Monday. There is no new bullish story, but consumers remain concerned about the shrinking availability of supplies from Ukraine this season given the historically low UK crop output. This leaves buyers having to bid up for home-grown rapeseed to ensure that enough comes to market before the expected switch in the new year to Australian supplies. All crops in Australia are on course to produce bumper yields from the 2020 harvest following recent widespread and beneficial rains.
- Strong Chinese demand
Further afield, oilseeds markets have been well supported by a combination of rising food demand as economies emerge from lockdown and sustained Chinese buying. Traders believe that China has already booked 15.5 million tonnes of new crop soybeans from the US with a further 2.5 million tonnes of sales made in recent days. Last week's trade discussions between the two countries were called off by the US. However, the Chinese Ministry of Commerce stated this week that talks are back on and likely to take place in 'the coming days'. All of this indicates that there will be no let-up in the pace of the Chinese stock build.
- Harvest progress picking up pace
UK pulse harvest is now gathering pace, with many pea and bean samples now being taken to market. On the whole, consumers are still hesitant to commit to forward business, which results in a lack of price movement. However, there will always be premiums to be made for good quality pulses and we urge growers to submit their samples in ample time to make the most of all marketing opportunities.
So far, yields and quality have been extremely variable across the country with few trends emerging. We are yet to see any bulk of spring beans harvested. However, the market is expecting good volumes to come forward. This is one to watch in the coming weeks.
- Contracts for Harvest 2021
Current market uncertainty is leading to the increased popularity of pulse buyback contracts. There may be limited time to commit to these buybacks, so if you're interested, now is the best time to consult with your on-farm contact.
- Access your grain analysis records
Remember, all your grain analysis records can be accessed through the MyFarm farm management platform via MyAccount. You can also use the platform to view analysis of all loads delivered into Frontier under the 'Collections/Deliveries' section. Analysis results are available in real-time with most results updated in MyFarm within 48 hours of receipt of goods. If you are a Frontier customer, you can log in to your MyFarm account for free, here.
The granular urea buying and tendering process in India has led to further increases in the Profercy World Nitrogen Index (PWNI), pushing nitrogen values around the world upwards again this week. Nitrogen prices in the UK followed again at the end of last week, pushing ammonium nitrate up by around £25/t from the initial June new season offers. This increase is still lagging behind urea which has firmed £45/t since the early UK offers in May and June. The UK market is so quiet at this time of year that the actual full world effect of urea price increases has not yet fed through to the UK - watch out for further possible increases once UK stock has gone.
NPK compounds have also risen in price on the back of higher nitrogen prices. In last few days, we have seen the emergence of the political effects in Belarus causing issues in the fertiliser world. Belarus has one of the world's largest potash mines and currently the workforce is on strike, protesting against the recent disputed election. The Belaruskali mine is the second largest exporter of potash after Canada, meaning any drop in production can result in a rapid uplift in potash values. This situation could lead to increased potash prices in the UK, so please speak with your local Frontier contact for price updates.
Interest in PKs where crops have been harvested is rising as the soil sampling teams are busy reviewing soil nutrient reserves after the previous season's weather. Frontier's advice is to start this season's drilling with fresh soil analysis results so any nutrient requirements can be more targeted to the lower levels within the field rather than a blanket approach across the farm. Speak to your Frontier contact for information on our soil sampling offers.
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