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- Impressive gains for UK wheat
Damaging heat and prolonged dry weather coupled with a fall in the value of sterling versus the euro have driven wheat prices higher again this week. Since the beginning of May, London 2020 wheat futures have gained almost £15/t. This is a particularly impressive performance when compared to French wheat futures, which, over the same period, have increased by little more than €3. Unfortunately, not all farmers will benefit from this. The prolonged wet drilling conditions throughout the autumn and winter period prevented planting in vast areas of the country and will result in the smallest UK wheat crop since the 1970s. It has been estimated that total production might only amount to ten million tonnes compared to the 16.2 million tonnes from the 2019 harvest. However, prospects are worsening with reports of late-drilled spring crops failing. The need for import to make up the deficit is increasing daily and will be a logistical challenge for the industry to manage.
- EU cuts wheat production prospects
This week, the EU made a sharp cut to its estimates for 2020 EU-27 wheat production. It cut 4.3 million tonnes from its previous report and now forecasts the common wheat crop as down to 121.5 million tonnes. This compares with the 130.8 million tonnes from the 2019 harvest. The primary culprit is France whose output is predicted to drop from 39.6 million tonnes to 32.3 million tonnes.
Similar to many in the UK, French farmers in the north west of the country endured impossible winter drilling conditions and are now suffering from heat and dryness. This indicates there will be a cut in exports for the trading block. This season, the EU is neck and neck with Russia to be the world's largest wheat exporter. The EU estimates its own shipments will amount to as much as 32.5 million tonnes. However, the 2020/21 estimate has been reduced significantly to only 26.5 million tonnes due to conditions this season.
- Russian and Ukraine wheat crops lower
Rain arriving in southern Russia and southern Ukraine, which have been the driest areas of those Black Sea countries, was seen as beneficial and kept world markets flat earlier this week. However, some predict that the prolonged dryness over recent weeks will cause irreversible damage; a premise which is supported by crop estimates published this week. The Russian Institute for Agricultural Market Studies, IKAR, cut its wheat crop estimate last week to 76.2 million tonnes and went on to make further cuts this week, bringing the current estimates for the Russian wheat crop to just 75.6 million tonnes.
The Ukraine Met Office cut five million tonnes from its wheat crop estimates for the Ukraine, bringing the total estimate down to 23.3 million tonnes. The United States Department of Agriculture (USDA) May report has 28mmt in its balance sheet. However, it is not all bad news for Black Sea production prospects. According to the Turkish Statistical Institute, Turkey will see its wheat output jump 7.9% on last year to a total of 20.5 million tonnes in its first published estimates for 2020.
- Barley continues upward trend
UK feed barley values continued their upward trend after another dry week across the UK with little signs of rainfall in the short to mid-term forecast. Crop conditions are far from ideal and the deterioration of the barley crop is highlighted in the latest UK crop monitoring report, which rated 48% of spring barley and 25% of winter barley as being in 'good' or 'excellent' condition. These percentages are well down from the 75% and 89% we saw respectively at this stage last year. A continuation of current dry conditions will no doubt see these figures deteriorate further.
- Uncertainty over quality of malting barley
The dry weather in the UK is causing concerns not only around barley yields but also potential malting quality. Lower yields are likely to result in higher nitrogen levels due to lack of dilution. Maltsters remain absent from the market due to demand falling as a result of the Covid-19 situation. The supply and demand of malting barley, on paper at least, would still point to ample supplies. Uncertainty around malting barley quality is now likely to persist until harvest.
- Spain looks set for bumper harvest
Contrary to the conditions seen in the UK and northern Europe, the Spanish have had good growing conditions for barley and wider grains. Trade predictions estimate that the total Spanish grain crop could extend beyond 20 million tonnes, of which barley generally represents 50%. Spain represented the largest export destination for UK barley in crop 2019, but is unlikely to have any import requirements for crop 2020, highlighting its extreme volatility as a grain producer.
- Flat markets
There has been very little change this week in European futures markets, the value of sterling and the physical price of UK rapeseed. Dry and hot weather is causing understandable concerns about the potential of our crops, but this has to be balanced against demand, which has taken a substantial knock in the past couple of months and is not forecast to return to pre-virus levels before the end of 2020/21. Oil World is predicting that EU-28 crushings will drop by almost half a million tonnes next season as a result of lack of demand in the biofuels sector and the ongoing social restrictions following the Covid-19 pandemic.
- World stocks tightening
At a global level, we have a familiar battle between markets and politics. Oil World is predicting that the rapeseed stocks-to-use ratio will drop to 12.6% by the end of this season, which represents the tightest starting stock position since 2016/17. However, tensions over Hong Kong are not helping the prospects of US soybean exports to China. Furthermore, the latest developments in Canada over the Huawei executive extradition process have raised fears of further sanctions against canola which might have been destined for China. Any surplus Canadian canola is thought likely to look for a home in Europe which, in turn, will keep a lid on our own domestic prices.
CF Fertilisers announced its new season fertiliser price this week. As had been widely anticipated by many farmers but not necessarily other traders, the level for their flagship nitrogen product was pitched at just under £200/t for cash terms with higher values for delayed payments. This represents a £50/t reduction from this point last year and, despite a reset last autumn/winter, is still £30/t below the spring price. Our analysis shows that in 16 of the last 20 years, the June price has offered an average saving of over 15% when compared with buying in the spring. With increased volatility in all commodity markets and, in particular, fertiliser, the outlook for the next six to nine months is by no means certain; but, at this level, most growers have decided that it is worth booking tonnes.
The delivery window was again from June to September, with many distributors reporting September having sold out by mid-afternoon. Yara and the importers soon followed the aggressive lead of CF Fertilisers and had prices in place yesterday at similar levels. Given the volume of business placed on the first day, it is expected that CF Fertilisers will withdraw terms at close of play on Friday and look to assess the situation ahead of next week.
As ever, getting the right product to fit your system and cropping is vitally important and we would encourage growers to talk to their Frontier contact to discuss the best product for them and also to agree a suitable delivery window.
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