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US Chicago Board of Trade (CBOT) wheat and corn futures have been particularly volatile this week. Spring planting has advanced at a fast rate which has encouraged notable long liquidation from market speculators. Spring wheat planting reached 94% complete, which is well ahead of the 85% average for this time of year. Meanwhile, corn planting advanced to 90% complete compared with the 80% average.
Some analysts predict that US farmers will expand their corn planted area to over 96 million acres, which is well ahead of the prediction of 91.1 million acres from the United States Department of Agriculture (USDA) in its May World Agricultural Supply and Demand Estimates (WASDE) report. The pace of planting and historically high prices support the higher estimate.
This additional area could add 20 million tonnes to US corn production. Coupled with rumours of cancelled old crop US corn sales to China, CBOT corn futures traded to their lower limit on Wednesday, extending total price losses since their early May peak to over 20%. However, export sales data released by the USDA on Thursday ended the slide in prices and triggered a sharp reversal in market fortunes. There were no significant Chinese old crop corn cancellations and with confirmation of almost 5.9 million tonnes of new crop sales, CBOT corn futures traded back up to close at their 40 cent trading limit.
Dry weather has allowed US spring wheat drilling to advance at a fast pace and recent rain will benefit crops, but on Monday the USDA crop progress report revealed that only 45% of the crop is rated as 'good' to 'excellent'. This compares with 80% on the 31st May last year and is, in fact, the lowest first condition index score recorded since 1988 for spring wheat in the US. In neighbouring Canada, however, the situation looks more promising with the Saskatchewan Government reporting that the country's wheat drilling is up to 86%, which compares to an average of 77% for this time of year. Steady rains are helping germination and emergence.
Recent rainfall has helped improve wheat production prospects for the EU-27. The European Commission has increased its monthly estimate by 1.4 million tonnes to a new total of 126.2 million tonnes. This is well above last year's 117.2 million tonnes. However, increased domestic demand and export estimates leaves stocks falling by 600,0000 tonnes on the year to a tight 10.8 million tonnes.
Meanwhile, the latest French wheat crop ratings show a one-point improvement on the week with 80% now seen as 'good' to 'excellent', which supports expectations for higher production. This time last year only 56% of the French wheat crop achieved this rating.
Australian farmers have been drilling their wheat with near-ideal growing conditions, raising the prospects for their second consecutive bumper wheat harvest. Many of the key wheat producing states enjoyed widespread rain which replenished soil moistures ahead of planting throughout April and May. Weather forecasters see an 80% chance for higher-than-average rainfall for New South Wales and South Australia over the next three months and the largest producing state, Western Australia, is seeing average rainfall. Analysts have increased their production estimates to 29.5 million tonnes, which is 2.5 tonnes above the USDA May WASDE report estimate of 27 million tonnes.
The Agriculture and Horticulture Development Board (AHDB) released its latest UK supply and demand estimate this week, highlighting the significant usage of feed barley in compound feed for the 2020-21 season. Average season usage from 2015 to 2020 was estimated at 3.808 million tonnes, but this year's usage reached 5.313 million tonnes due to barley's significant discount to wheat. That discount has narrowed in recent weeks as a result of a colder April and consequent slower grass growth, which contributed to a longer winter feeding season in many parts of the UK. With that discount narrowing to wheat as a result of this additional demand, some compounders are now making the switch back to wheat.
New crop barley prices eased back further at the start of this week as the global grains complex continued its sell-off on favourable growing conditions for the US, Europe and the Black Sea. It should be noted that new crop Black Sea feed wheat is currently cheaper than Black Sea feed barley, so the spread between wheat and barley may need to widen to generate demand.
It has been a very quiet week in the malting barley market. Prices and premiums have drifted lower with little trade as UK maltsters wait for their brewing customers to commit before entering the market. Malting barley crop prospects continue to look positive throughout Europe and warmer temperatures and less rain in the forecast next week will further improve crop potential.
A softer tone to the market has continued in the past week despite global oilseeds stocks set to be at a five-year low at the end of this season. US soybeans and Canadian canola are the two stand out tight markets and, overall, oilseeds stocks will close at only 18.2% of annual usage. This compares with levels of 19.8% a year earlier and 23.2% two years ago. However, short-term, the market's focus is on improving crop prospects for the forthcoming harvest. Widespread rain in Europe is matched with wet conditions in North America where planting progress on spring crops is running well ahead of average.
In March, 41% of UK oilseeds crops achieved a condition rating of 'good' to 'excellent' from the AHDB in comparison to only 26% a year earlier. The USDA now reports on the UK market separately from the EU and is forecasting UK rapeseed yields from harvest 2021 at 3.41t/ha, which could produce a crop slightly up on last year despite a near 60,000 ha drop in plantings.
There has been much discussion in recent days about the role of fund investors, or speculators, in agricultural markets. Their activities are largely undertaken through the world's futures markets and, as they neither produce nor consume the underlying commodity, they are rarely involved in handling any physical goods. They are partly motivated by opportunities for fast profits but some of the money invested is there as a hedge against inflation. Over long periods of time, agricultural produce prices have tended to drift higher and owning these commodities provides a good alternative to cash holdings whose real buying power can erode, particularly during times of low interest rates. The funds provide welcome liquidity to markets, but their activities also tend to make markets more volatile; evidence of which we have seen in recent weeks.
As of mid-May, EU rapeseed prices have gone up by 54% over the past 12 months to reach 15-year highs. However, in the last ten days UK new crop rape prices have fallen by around £40/t. This has been in line with a sell-off in most of the world's oilseeds markets based on a combination of better weather conditions and plummeting crude oil prices. However, the pace of the fall has certainly been accelerated by the selling momentum generated by the more speculative side of the market.
New crop prices remain attractive and growers continue to take advantage of these historically high pre-harvest levels.
Old crop bean positions seem to be well and truly covered now by both the consumer and the exporter. What few parcels remain of old crop beans are trading at a small premium to new crop values and very soon will be trading at a discount.
New crop bean values continue to reflect the rollercoaster ride of wheat futures. This week, values have been trading at around £10/t lower. The good news for growers is that with crop prospects improving daily, demand from consumers remains both in the UK and abroad. This interest, however, is only for feed beans with very little interest for human consumption. In Egypt, the market is still long of old crop Australian beans and with very high container freight rates and slow shipments to Sudan, it is unlikely the UK will be able to compete into North Africa in the coming months.
The new season summer 2021 nitrogen market kicked off midday on Monday, with prices generally reflecting the firm energy and urea values globally. Urea values continue to drive the market with very few offers from importers and prices ranging from £340 -365/t for new stocks for autumn arrival in UK. Higher freight rates on all imported goods to the UK are also adding to the costs.
Imported ammonium nitrate volumes remain very low with small parcels offered but at slim discounts to UK 34.5% nitrogen. A reaction to the new price structure of June and July was slower than average but, by Tuesday, volumes started to increase. Terms were withdrawn yesterday and new terms for August and September delivery are expected early next week.
With fertiliser markets largely focused on nitrogen this week, some may not have realised that the only commodity not to have firmed in the last few months is potash. Potash has traded in a narrow range for the last two years with no significant increase. This means it may be worth watching over the coming weeks.
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