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- Strong demand rallies wheat markets
London and Paris wheat futures rallied this week, reaching five-week highs and following US wheat futures from the Chicago Board of Trade (CBOT) which gained 10% in value during August. The US market gains are due to increasing demand for both wheat and corn. US wheat export sales announced by the United States Department of Agriculture (USDA) on Thursday were at 740,000 tonnes – this is up on trader estimates which ranged between 400,000 and 700,000 tonnes. In addition, 747,000 tonnes of corn was confirmed as sold to China and a further 140,000 tonnes of sales were confirmed to unknown destinations. US corn futures are up 12% over the past three weeks, underpinned by concerns over hot and dry weather in the Midwest affecting corn crops as well as continuing optimism for further demand from China. Black Sea wheat prices were also firm this week, gaining $5/t, which reflects the strength of demand, particularly for Russian wheat. It is highly likely that Russia will ship a record amount of wheat in August - close to five million tonnes - and that July and September wheat shipments could reach up to 12 million tonnes. This could mean over a third of the Russian surplus will be shipped in the first quarter of the season.
- The IGC forecasts production to increase
The International Grains Council (IGC) published its latest world balance sheets this week, increasing world wheat and corn crop production estimates. However, this bearish data had no negative impact on the markets. Its global corn crop forecast was increased by two million tonnes to a record 1.166 billion tonnes and world wheat production was increased by one million tonnes to 763 million tonnes. The wheat increase was due to an increase for Russia from 78 million tonnes to 79.9 million tonnes and Australia from 26.2 million tonnes to 27.5 million tonnes. The impact was partly offset by downward revisions for France to 31 million tonnes from 32.6 million tonnes and Romania to 5.6 million tonnes from 7.8 million tonnes. The US corn crop is currently seen at 384.2 million tonnes – over three million tonnes up from the previous estimate of 380.8 million but still below the USDA's estimate earlier this month of a record 388.1 million tonnes. The US corn crop yield potential was dented by the severe storm on 10th August which sent hurricane-like winds and hail across the biggest producing state, Iowa. However, estimates from the recent Pro Farmer Crop Tour suggest the average US corn yields will be lower at 177.5 bushels per acre in comparison to the USDA's estimate of 181.8 bushels per acre. Using the harvested area estimate from the USDA, the crop size would be nearer 378 million tonnes.
- Not all good news in the Southern Hemisphere
While the IGC increased its estimate for Australian wheat production to over 27 million tonnes, some wheat-producing provinces of Argentina are continuing to suffer from adverse weather. In its latest wheat crop update, Buenos Aires Grain Exchange stated that 2020/21 wheat yields could fall as much as 50% in northern and central parts of the country's farm belt due to dryness exacerbated by unusually strong frosts and crop-eating pests.
- Malting barley quality varies across UK
Weather has been the main hindrance of the barley harvest in many areas this week. Malting barley quality continues to be mixed, with high nitrogen continuing to be a feature across East Anglia and the Midlands. Germination and pre-germination problems are also starting to appear. English growers with some barley still to harvest are advised to keep later-cut barley separate where possible to avoid spoiling the quality of the barley already in the store. Domestic malting barley prices are a significant premium above export levels and good quality barley from Yorkshire and the south will need to be hauled to the areas of higher domestic malting barley demand. Progress remains slow in Scotland with very little harvested south of the River Forth. Malting quality looks to be good to date, with low nitrogen and good screening levels.
- Demand remains low in European markets
In the wider European malting market, due to falling demand as a result of Covid-19, buyers remain largely absent from the market, with significant stocks carried through from last season. The Scandinavian barley harvest is now virtually complete with good quality and higher-than-anticipated yields. Nominally Danish malting barley prices are now lower than UK export malting barley values.
- Large UK feed barley exports expected
With a larger percentage of malting barley failing, the size of the UK's surplus of feed barley is growing by the day. With many domestic compounders already at the maximum inclusion rate for barley due to the large discount to wheat, this surplus will need to be exported. As it stands, UK barley is still not competitive against other origins into third country markets and, with Spain and Portugal not needing to buy, UK barley is currently only competitive into Holland. With the uncertainty about trade agreements and potential tariffs being introduced at the end of December, the UK will need to have an active export campaign in place before then.
- Stable domestic markets
It has been another week of static prices, with values little different to where they were at the start of the calendar year and just slightly down from recent highs. Mid-March has proven to be the lowest part of 2020 so far, when the outbreak of the pandemic caused hesitation in markets which led to a slump in demand. However, the markets have recovered well in recent months, with post-lockdown crush volumes increasing and European crops shrinking. With China in stock-build mode and domestic crushers requiring UK farmers to continue supplying the market in the short-term, the nearby downside potential feels limited.
- Rapeseed price premium
European rapeseed looks set to remain relatively expensive by historical standards compared to other competing vegetable oilseeds. This is needed to ensure that almost all of Ukraine's exportable surplus comes to Europe and also creates enough headroom for around two million tonnes of lower value Canadian canola to be imported. Canadian seed has to trade at a discount because of issues regarding genetic modification which limit the oil's use to biofuels only. As we move into 2021, the prospects for Australian imports will move to centre stage. Australian weather is currently helpful and this could be a factor in the longer term that will concern long holders of seed.
- Markets remain stagnant
Whilst poor weather conditions continue to delay harvest, there is very little new bean business taking place. Spot loads of feed beans for delivery next week have been trading at a £5-10/t premium to 'as available' prices. With minimal new export demand from feed buyers and relatively cheap new crop Australian beans still on offer to Egypt, the outlook looks very bearish. There will be a short widow of opportunity for the best quality spring beans but this will soon close when the first shipments arrive from Australia.
- Decent supply of good quality peas
New crop green peas are trading at £240-250/t ex-farm, depending on the colour and location of samples. Despite some unharvested crops, which are likely to be bleached in colour, there seems to be plentiful supply of the better quality. With feed, bleached peas are worth less than £200/t and it is clear that the timeliness of harvest is paramount in obtaining the best green peas.
This week has seen little movement both globally and in the UK with regards to nitrogen and urea prices. Price indications have moved sideways on the global urea market, offered at $280/t FOB from Middle Eastern suppliers to Europe. UK nitrogen and sulphur grades remain competitive and further increases should be expected on values going into the end of 2020. However, there is unlikely to be a significant increase in purchasing activity until harvest is complete and growers have a clearer picture of autumn plantings.
Frontier's liquid UAN offers are still open and are extremely competitive in the market. Growers who haven't covered their autumn and spring supplies yet are advised to do so at current market levels.
Political tensions in Belarus continued this week, resulting in strike action which could tighten potash supplies going into autumn. This will need to be monitored carefully over the coming months but, as things stand, current availability is sufficient.
Phosphate values remain firm but supplies going forward will tighten, adding pressure to increase farmgate pricing. DAP in particular has increased in value by £10/t in the last two weeks, whilst higher nitrogen NPK grades have remained stagnant. A price increase in blended and compound grades is expected over the next month.