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- Wheat markets rally
Wheat markets rallied sharply earlier this week, recovering much of the previous week's losses. Attention turned away from loss of demand due to the impact of Covid-19 to problems with supply, especially in the ethanol sector.
The Ministry of Agriculture of the Russian Federation stated that grain exports would cease once the seven-million-tonne quota they set for the last quarter of the season was reached. It is thought that 3.5 million tonnes of that has already been shipped. Over one million tonnes is being loaded at Russian ports each week, meaning the quota will be surpassed early May.
The Ukraine is also close to meeting its wheat export quota of 20.2 million tonnes, having now shipped 18.5 million tonnes. It is also reported to be considering limiting corn exports to 29.3 million tonnes while the United States Department of Agriculture (USDA) has targeted 32 million tonnes.
- Concerns for EU crops
In addition to restrictions for old crop wheat exports, there has been increasing concern that prolonged dry weather across northern Europe and the Black Sea will harm the potential for 2020 harvest winter wheat crops. Germany reportedly received 80% less than its normal rainfall over the past two months. In the Ukraine, the Department of Agrometeorology said that Ukrainian crop yields could drop 20% due to the extreme drought across the country.
French winter wheat crop ratings continued to deteriorate, falling three points on last week to 58%, which is rated 'good' to 'excellent'. This compares poorly to the 79% they achieved this time last year. However, futures prices eased on Friday as weather forecasts for the coming week showed a shift to more changeable weather and much needed rain.
- China takes advantage of cheap US corn
Ethanol production in the US continued to drop and is now almost half what it was this time last year. With US farmers set to boost their corn plantings by 7.3 million tonnes on last year, US corn futures have taken a beating. Earlier this week, they dropped to 301 cents per bushel – a 14-year low. China appears to have taken advantage of these historically low prices, stating it intended to boost its strategic supplies and import up to 20 million tonnes of corn, mostly from the US.
- Differing weather patterns for northern and southern Europe
Southern and northern Europe have seen very different weather patterns over the last couple of weeks. The south has seen good rains which could lead to a considerable grain crop – particularly in Spain. Spain represents an important export destination for UK feed barley; the UK exported 419,551 tonnes between July and the end of February this crop year and as a result of good rains, it looks like Spain will have a reduced import requirement for 2020 crop.
Drier conditions have been seen across northern Europe, including in the UK, where spring barley has seen little rain since planting. France has also seen dry weather and downgraded its spring barley crop from 78% rated 'good' to 'excellent', to 69% earlier this week. The market is likely to remain sensitive to weather patterns over the coming weeks as the requirement for rain in several growing areas becomes more significant.
- Virus to impact long-term demand
Covid-19 remains the key talking point on the demand side for both feed and malting barley. Pubs, food service and convenience food outlets remain closed, with comments this week from ministers suggesting that opening these facilities could be amongst the last of any lockdown measures to be lifted. To highlight this, Oktoberfest – an event that draws millions of tourists to Germany at the end of September – has been cancelled, highlighting the long-lasting impact that Covid-19 will have on barley markets. International brewers have started releasing data on the loss of sales attributed to Covid-19 with the general expectation being that these statistics will only worsen over the next few months.
- Volatility and uncertainty points to the pool
Frontier's grain pools for both feed and malting barley remain open. There is so much uncertainty at play in the current climate – fluctuating weather patterns affecting key production and demand centres, the significant implications of Covid-19 on demand, and the impact of Brexit coming into effect at the end of last year. In light of all of this unpredictability, Frontier's grain pools represent a valuable, low-risk marketing approach that growers should seriously consider.
- Crude oil woes
The troubled vegetable oil sector received some much needed good news this week. Recent talk suggests the US is looking to broker a deal with Russia and Saudi Arabia to stem the flow of crude oil onto world markets.
Yet, despite a number of countries agreeing cuts in crude oil output, the market continues to be under pressure. Prices are set to be notably lower still this week after previous falls in eight of the last nine weeks. Brent crude is hovering just above the $20 per barrel mark and a number of US markets turned negative this week. Being paid to own oil seems like a win until it comes to securing storage.
Outside of the food sector, demand for biofuel runs as a distant secondary concern. However, this demand remains an important element in the overall oil market.
- Vegetable oil stocks building
Domestic values have slipped this week. Crushers have been faced with the reality of large stocks of processed oil backing up as a result of reduced deliveries into the food services sector, which makes up 80% of total demand. This factor might be manageable if a quick return to normality could be envisaged. However, our fast food outlets, restaurants and pubs could remain closed for several months and, with unemployment soaring, it's not clear that our old social habits will automatically become re-established when social isolation measures are lifted.
- Dry weather impacting crops
Signs that China is about to follow through with its pledge to buy more US soybeans alongside continued dryness in Europe and the Black Sea regions are providing a little bit of support to oilseeds markets from the supply side.
However, expanding carryover stocks in the UK, Europe and global markets are ensuring that prospects for a bull run remain distant and that demand issues will continue to be centre stage for the foreseeable future.
- Weather to determine success of new crop beans
All old crop bean values are now falling with lack of demand from both the UK and further afield. This slide in prices is likely to continue, given the significant price difference between old and new crop values. New crop trading seems to be completely on hold with no lead from the wheat market as sellers try and determine the impact of the warm, dry weather on the growing bean crop. There is no doubt that if all areas in the UK get good rainfall in the next ten days, the crop will respond very quickly. With a big spring crop area in the ground, values will certainly come under pressure.
Whilst some areas experienced limited rainfall last weekend, others were not so fortunate. In some parts of the country, irrigation is now in full swing and a good inch of rainfall would help get the crops moving. Yet, without rain, fertiliser demand has slowed and talk has turned to possible new season deals from June onwards.
Yara released a new season offer in France, as it does every year around this time, and market watchers will be keen to see how that works. Yara is down approximately €30 from this time last year for granular 33.5%, which is a good start, but unless we see rain soon, enthusiasm will wane. The UK market will watch what happens in France, but it is too early to predict what the UK offers will be come June.
Demand for blended fertilisers has slowed, mainly due to the current dry weather.
The prices for PKs are based on current exchange rates. As a result, current prices remain at a three-year low for MOP, TSP and DAP. For some buyers, this will represent an opportunity to buy now in order to store for autumn application or apply when the rains return.