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World wheat markets have fallen again this week as a result of the pressure of improving production potential for some of the world's primary exporters. Chicago Board of Trade (CBOT) wheat prices are now 10% below their end-of-April high and London wheat futures hit a low at £21.50/t beneath their recent peak.
Conversely, US winter wheat prospects look particularly upbeat following this week's annual Kansas crop tour. Yields for the south west of the state are seen at 56.7bu/a, which is significantly higher than the five-year average of 42.7bu/a. There were similar results from northern Kansas, which is the primary US winter wheat producing state; it is set for a crop with a record yield.
Meanwhile, the northern US spring wheat producing states have been exceptionally dry with extreme drought conditions expanding. Drilling has accelerated to 85% complete, which is well ahead of the 57% completion at this time last year. Additionally, good rainfall is now in the 14-day forecast.
The Saskatchewan government of Canada has reported tremendous progress for its farmers last week with 74% of the 2021 crop now seeded. This is well ahead of the five-year average (2016-2020) of 48% for this time of year. Minimal rain and fair weather across the province has allowed producers to seed without any prolonged delays.
European grain trade association, COCERAL, increased its wheat production estimates for the EU with notably improved yield prospects for Balkan states as well as Spain. It now forecasts a crop of 130.9 million tonnes, up from its previous estimate of 126.6 million tonnes.
One of the primary bullish drivers for world grain markets since the beginning of the year has been the adverse weather impacting Brazil. Initially, prolonged wet weather prevented timely planting of corn due to delayed soybean harvesting. This was followed by prolonged dry, hot weather, which has ruined the potential of late drilled crops. In its May World Agricultural Supply and Demand Estimates (WASDE) report, the United States Department of Agriculture (USDA) cut its corn crop estimate from the previous prediction of 109 million tonnes to 102 million tonnes. However, this week, analyst group Agroconsult signalled more significant losses in Brazil's primary corn growing states Mato Grosso and Parana and slashed its total production estimate to just 91.1 million tonnes.
The USDA estimates China will import 26 million tonnes of corn during the 2021-22 season. This matches the estimates for this current season. The estimates for both this season and next are significantly higher than the actual import volumes seen in 2019-20 when China imported just 7.6 million tonnes. However, since the beginning of the month China has bought almost 11 million tonnes of US corn for next season with half of that confirmed this week. It is thought unreported US purchases could see the total as high as 14 million tonnes.
In addition, Ukraine is believed to have sold 4-6 million tonnes to China. Private analysts believe China may have bought up to 20 million tonnes in total with the crops still being planted. This adds a strong bullish element to world corn market dynamics. However, high prices and ideal drilling conditions could see US farmers plant significantly more than the USDA May estimates. By the end of last week, US corn planting advanced to 80%, which is well ahead of the average of 68% for this time of year. Some analysts see the US corn area exceeding 96 million acres, which compares to an estimate of 91.1 million acres by the USDA. This difference has the potential to add a further 20 million tonnes to US production.
Feed barley prices have fallen along with the wider grain complex this week. New crop demand is muted as domestic compounders take some time to adapt to feed barley prices that are far less of a discount to feed wheat than last year. Barley will find less inclusion in rations for the coming year unless this spread widens later in the year.
New crop malting barley prices have also fallen lower this week, both domestically and on the export market. Malting barley premiums are getting squeezed due to favourable weather conditions both in the UK and across Europe. The UK malting barley supply and demand situation for 2021 currently looks set to have a healthy surplus based on average yields and pass rates, but only time will tell if this potential can be realised.
Frontier continues to offer a range of guaranteed minimum premium contracts for both winter and spring malting barley. These schemes are a flexible risk management tool that protect the malting premium while giving growers the flexibility to hedge their feed barley base price at a time of their choosing. These schemes offer are a low-risk option, as growers do not need to worry about selling fixed price malting barley and subsequently don't need to worry about producing the correct quality. For more details about malting barley marketing options available in your area, please speak to your local farm trader.
At this time of year, most rapeseed growers are more interested in looking at their crops than looking at markets. Growing conditions in April weren't ideal, but May has brought welcome rains and some higher temperatures later in the month. It is therefore not surprising that there has been a lot more talk about prices recently, particularly given the historically high forward levels.
With the benchmark Liverpool market prices currently sitting at over £100/t above values three months ago but £18/t under levels available this time last week, it's a white-knuckle ride tracking values.
It's noticeable that more farmers than usual are taking advantage of the forward market to hedge a part of their likely production. A collapse in prices seems unlikely as there is no escape from low year ending stocks for all global oilseeds. However, near-term traders will be on the lookout for changes in weather patterns and in the behaviour of the fund investors, or speculators, who make up a substantial part of the world's agricultural futures markets.
Reports of rain in the central and southern US plains and throughout much of Europe, as well as showers in the west and east of Australia have combined to give markets a softer feel this week. A combination of a favourable monsoon and high prices is reported to be raising Indian soybean plantings by 10% this year and the EU's largest rapeseed producer, Germany, is said to be on course for a 3.1% hike in production in 2021.
However, production in Canada, a key supplier to Europe, remains a concern as severe drought conditions are threatening germination and early crop development. Meanwhile, record demand in the first eight months of the season have left canola stocks at their lowest level since 2013, prompting fears that available export volumes for August and September will be sharply reduced prior to their harvest in late September and August. This heightens the expectation that Europe's crusher will be heavily dependent on good early suppliers from their own farmers.
This week has also been a reminder that oilseeds markets are very much open to outside influences. A weakness in equity markets followed by a collapse in energy prices has led to a sell-off of a range of commodities as investors have adopted a more risk-adverse stance. Heavy fund selling wiped off over two weeks of gains on US soybean markets as speculators looked to liquidate profitable long positions built up in recent months. Although there is now some feeling that high prices are finally starting to ration demand, the problem of low global stocks in all the major vegetable oil markets remains.
Prices continue to remain firm going into the end of May for urea and ammonium nitrate, which have been bolstered by India's tender requirements. The country is looking for 1.2 million tonnes of granular urea by 30th May. On the back of this, North African prices into Europe have gone up considerably and are trading at $400/t freight on board (FOB) at the time of writing. This is $25/t up on last week.
Values for both imported and UK-produced ammonium nitrate are firm, awaiting new season to come on stream before the end of the month. A strong start is expected when this happens.
Grassland markets have taken hold for PKs and good orders are coming in for these grades, which brings with it a depletion of supplier stocks. New supplies coming into the UK are showing a considerable rise in value with all straights reflecting a firm global market going forward. It is difficult to see values dropping with current usage high and freight values increasing all the time. As mentioned in last week's report, it will be worthwhile taking stock and covering product for this coming autumn. Please keep in touch with your regular Frontier contact in regards to any requirements you may have.
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