- Coronavirus impact
The spread of the coronavirus has triggered record-breaking falls in stock market values this week, with crude oil losing a quarter of its value since the beginning of 2020. This negativity has inevitably spilled into grain markets and world wheat prices have dropped 6% since last Friday's close. There are concerns over the impact the virus could have on supply chains and demand, although international trade appears to be continuing as normal at present. Futures markets are oversold but, should the virus continue to spread, it seems likely that global wheat prices will continue to come under pressure.
- 2020/21 wheat area seen higher
According to the most recent report published by the International Grains Council (IGC), the harvested wheat area for 2020/21 is predicted to rise by 2% to 221 million hectares. This is an increase of one million hectares on the previous report, which also estimates that crop production will be six million tonnes higher than the previous year at a record of 769 million tonnes. This is largely due to increases in India which is not necessarily free for exports.
- DEFRA tightens UK 2019/20 wheat balance sheet
The Department for Environment, Food and Rural Affairs (DEFRA) published its second UK supply and demand balance sheet estimates this week which saw overall availability slightly tightened. Production was cut by 58,000 tonnes to 16.225 million tonnes but any other notable reductions as a result of recent Basic Payment Scheme data were not accounted for. On the demand side of the balance sheet, the increase in use of bioethanol was offset by cuts in wheat use for animal feed, primarily in the poultry sector. At 4.449 million tonnes, the balance of availability is lower by 80,000 tonnes on the first November estimates. With UK wheat exports to the end of 2019 likely to be about one million tonnes and subsequent shipments notably slower, over three million tonnes are expected to be carried through to next season. This carry will be necessary given the reduction in winter wheat drilling and potential delay to spring drilling caused by continuous rainfall.
- Virus talk sinks macro-economic factors
Markets in areas of supply react negatively to disruptions affecting those in areas of demand. This is especially true in East Asia where demand is particularly high. Stock, energy and commodity markets have all dropped this week with agricultural futures markets, fortunately, dropping the least. Until the effects from coronavirus abate and trigger an increase in demand in East Asia, this non-agricultural factor will have a high level of influence.
- Russia take North African demand for feed barley
This week a Tunisian state tender was filled with supplies from Russia, where marketing for the exportable surplus of crop 2019 is behind. Due to the warm and dry weather, crops are advancing well for this time of year and harvest is expected to come early. Subsequently, Russian traders are keen to finalise sales of the exportable surplus from last harvest. This has hit prices in France and the UK where there is also a need to sell more of the exportable surplus from crop 2019.
- Weather continues to shape the market
Prices in the longer-term may benefit from a number of weather risks. Southern Russia is fairly dry. With its harvest due in May, North Africa has had little rain this growing season. Spring barley sowing in France is behind schedule and the extra area to be sown in England is at least a month away from starting. The delay looks likely to last until early April for many UK growers.
- Weak pound not enough to save prices
Physical UK prices have dropped £6/t in the last week despite sterling falling in value against the euro by 2.5%. The fallout from the spread of the coronavirus on financial and commodity markets has been well documented elsewhere, but it is worth remembering that markets are also under pressure from increased soybean crop estimates for South America. The Brazilian crop is now pegged at 126 million tonnes, up 5%, with Argentine production expected to grow by 0.5 million tonnes.
- Grounds for long-term optimism
It is important to maintain a degree of perspective by looking beyond short-term factors. There is still uncertainty about where the coronavirus is heading, but it is reasonable to hope that the current situation will be brought under control and trading will return to normal in the coming months. Also, according to a new report from the IGC, world soybean production in 2019/20 has dropped by 5%, led by a fall in US production of almost 20%. This, along with falling global vegetable oil stocks, signals that there is scope for markets to recover in the longer-term.
- Feed bean market continues to rally
Feed beans have retained their strength this week as export demand continues to push prices up. The next influence in the market will be whether other commodities will factor more cheaply into the consumers' food rations than beans. Currency markets have also been volatile, with sterling losing ground against other major currencies. As the bean market is heavily export-focused at the moment, this sterling weakness has shown and may continue to show benefit to ex farm bean values.
It has been a steady week which has seen little UK activity due to the continued poor weather conditions. However, urea is still globally firm, causing price rises in mainland Europe on Yara AN 33.5%, which is up €5, and CAN.
UK suppliers have yet to make a move based on these urea markets. Any changes will likely be caused by the effect of exchange rates due to the weakening of sterling.
To stay ahead of these uncertain markets, growers who require product in March and April are advised to discuss their options with their Frontier contact.
This week has seen supply issues with raw materials into many UK ports, caused by the significant impact of recent storms. Whilst stocks of straights are now being replaced, it is doubtful that they will last given the backlog that has built. The delay in products (MOP, DAP, etc.) is having a knock on with blending production.
Growers should consider compound NPKs, as suppliers such as CF Fertilisers and Yara have reduced prices to be more competitive and, more importantly, have grades in stock for prompt movement.
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