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- Volatile French wheat futures
In contrast to UK feed wheat futures, the Paris futures market has a milling standard specification. Under normal circumstances traders may elect to deliver physical wheat against their futures sales at harvest or buy futures as a hedge against milling wheat export sales they make. However, the adverse French weather and delayed harvesting has seen lower than average specific weights, particularly in northern France, and has left traders unable to source wheat of a sufficient standard to meet the specification required for export (78kgs) or the specification required for futures wheat (76kgs).
This has forced traders with short futures positions to buy back their contracts rather than deliver physical wheat. Last week, this resulted in the nearby September position hitting a €30/t premium to the next December position and saw prices rise to their highest level since 2013.
On Wednesday, almost all of those September contract price gains were lost with falls of over €29/t resulting in parity with the December contract. The contract expires on the 10th September and with the highly variable French wheat quality more volatility can be expected between now and the 10th.
Meanwhile the end is now in sight for the French wheat harvest, with 96% having been combined as of the 23rd August.
- Further lower production estimates
Following in the path of the United States Department of Agriculture (USDA) last month, the International Grains Council (IGC) has highlighted world wheat production issues in its August report this week, particularly for Russia and Canada.
The IGC cut its Russian estimate by six million tonnes from its previous report to a new estimate of 75 million tonnes. It has also cut four million tonnes from its Canadian estimate to a new total of 24.5 million tonnes. This is due to the prolonged period of heat and dryness in Canada.
Its world wheat production estimate was six million tonnes lower at 782 million tonnes. However, with consumption lower at only four million tonnes, this leaves year end stocks down only two million tonnes on the IGC's previous estimate and only one million tonnes down on the year. The bullish aspect of the report is in the seven-million-tonne decrease in stocks for the major wheat exporters.
Earlier this week, the EU crop monitor MARS (Monitoring Agricultural ResourceS) cut its wheat yield estimates for the EU from 6.05t/ha to 5.98t/ha, highlighting issues such as excessive rain in Germany and too much heat for Sweden, the Baltics and Finland. The EU commission then cut 500,000 tonnes from its EU-27 production estimate to a new estimate of 127.2 million tonnes. A more notable cut was also made in its maize estimate. This was lowered by 1.8 million tonnes to a new total of 71 million tonnes.
- Upbeat corn crop estimates for Brazil
The 2020-21 season saw a succession of adverse weather events cripple Brazilian corn production and present one of the primary bullish grain market price drivers during 2021. The first USDA estimates, made in May 2020, put the crop at 106 million tonnes. However, delayed planting and prolonged periods of heat and dryness and periods of frost are likely to see the final figures rest at below 85 million tonnes. For 2021-22 the Brazilian national supply company, CONAB, sees an expanded corn area of 3.9%, bringing the corn estimate to 20.6 million hectares with a crop of almost 116 million tonnes. Achieving these estimates will be essential in maintaining the balance of global supply and demand. However, earlier this month US weather forecasters reported a 70% chance of a return of the La Niña weather system from November which, if realised, could again threaten South American production prospects.
- Barley market firm
Overall, the barley markets for both malting and feed remain firm this week. As the winter barley harvest is now complete, attention is turning to the spring barley harvest, much of which is malting varieties.
Feed barley demand remains good, with UK compounders looking to source supplies for September delivery. However, supplies are relatively slow in coming forward as much of the spring barley being harvested is being tested for malting suitability.
Underlying feed barley export demand for shipment to mainland Europe means feed barley values have remained firm and, for the short term at least, barley's discount to feed wheat has narrowed. It is yet to be seen whether this narrowing of the gap will result in end users switching out of feed barley and back to wheat in the long term.
- Steady progress for spring barley harvest
On the malting front, spring barley harvest is progressing steadily with some interruption earlier this week as last weekend's rain caused a halt in proceedings. Reported quality remains good in the UK with low nitrogens and good grain size meaning a high pass rate for malting grades. This would normally result in pressure on premiums as supplies look more than adequate for UK domestic demand. However, continued export interest into mainland Europe remains strong and, for now, is supporting good premiums for malting barley in the UK. As weather is set to improve over the next few days, the spring barley harvest should gather pace and the full quality picture in the UK will become known.
- UK prices hit new highs
Domestic markets have reached new contract highs this week after gaining over £50/t since the start of August. A 1.5% weakening of sterling against the euro has contributed to this recent surge, but it has been talk of the devastating drought in Canada and resurgent Chinese buying of soybeans that have been the real drivers. Added to the mix is talk about a developing La Niña weather pattern in South America that could see average rainfall cut by 20-30% over the next six months. This would see soybean crops shrink and could impact on ship navigation on the key Paraná River which sees a significant volume of Argentine exports pass through it.
- Global oilseed production seen sharply up in 2021/22
This last factor is a story that will develop over the coming months and no doubt there will be other situations developing as we go forward. However, there are thoughts that much of the bullish news is already reflected in current market prices and that as we move into the winter months price levels might cool off. It looks as though global supplies of rapeseed will remain tight in 2021/22 but Oil World, in its latest forecasts, now sees global output of all oilseeds at 706.7 million tonnes for the 2021/22 season, which implies an increase in production of 23.5 million tonnes. If realised, this would see stocks rising by 4.3%.
- Low stocks likely to keep markets volatile
The rapeseed harvest is virtually complete in the UK and much of the crop has already been priced. However, for long holders a judgement has to be made on when the best time might be to sell. Oil World is suggesting that there are 'lower prices ahead' based on its forecast of production surpluses but, with a low level of stocks to work from, markets are likely to be nervous and volatile. European rapeseed supplies are very dependent on a good Australian harvest to boost export availability in 2022 but will continue to be tight for the rest of 2021 due to the problems in Canada. What remains to be seen is the ability of consumers to switch away from expensive rapeseed oil into the more plentiful and cheaper vegetable oil alternatives.
- Spot market premiums dropping off
As the wheat harvest is getting tidied up in some regions, the bean harvest is slowly starting to take place. With new crop supplies becoming available in the south, spot market premiums have fallen away. Values over the past week have generally stayed in line with the wheat market but in the next two to three weeks values can be expected to fall as the larger-than-expected bean crop looks to find a home, which will be very difficult for wet beans that need drying.
- Beans not suitable for human consumption
As feed bean prices are still relatively high, there is little to no demand for human consumption beans and certainly the early samples that have been assessed would not be suitable for human consumption due to their appearance and too much Bruchid damage. If feed bean prices fall, then some buying interest for human consumption could be expected, but this will be very limited as few buyers will take the risk of trying to containerise beans with the risk of very volatile container prices combined with an inability to fumigate due to new UK transport regulations.
The global nitrogen market continues to firm with the main drivers being gas prices, a rise in ammonia values and higher freight rates.
Gas prices drive ammonia prices, which translates to high nitrogen prices. In the UK, nitrogen values have risen a further £15-20/t this week.
It is reported that India still has approximately five million tonnes of urea to buy for this season and, whilst the global nitrogen index appears to be plateauing, currency and freight rates are keeping the levels buoyant. Granular urea prices remain firm with plenty of demand, even at these levels.
The current UAN market remains relatively quiet with the vast majority of pre-Christmas tank fill business having been concluded. The expectation is that spring terms could be released within the next few days and these are anticipated to reflect the strong urea and ammonium nitrate market.
Demand remains slow for PKs whilst harvesting continues. However, prices are still firm on phosphates and potash. In particular, there has been another significant jump in MOP prices this week with no sign of values falling. Further price rises on MOP are expected very soon as the UK market still does not reflect true replacement costs. Growers are strongly advised to cover their requirements now and should also consider NPK compounds.
With reports of severe driver shortages and logistics pressure, not only in the farming press but within main tabloids also, it is crucial that wherever possible growers look to purchase product ahead of the spring. Your local Frontier representative will be able to discuss options.
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