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In recent weeks, analysts have been increasing their wheat production estimates for major exporters Russia, Ukraine and the EU-27. This has left a negative tone and seen world prices continually ease during June. This change has been highlighted by London wheat futures which lost £14/t during the month. However, the primary negative price driver has been expectations for a notably higher 2021-22 US corn crop than previously anticipated. Since March, the United States Department of Agriculture (USDA) has estimated the US corn planted area to be just 350,000 acres larger than last year at 91.1 million acres. In contrast, high prices and ideal drilling conditions have led some analysts to estimate an area of more than 96 million acres. This week the USDA updated its estimates and fearing a notable increase in predictions, speculative funds reduced their long positions, adding to price pressure. Average trade wheat area estimates were just below 93.8 million acres, but the USDA surprised the markets with an estimate of 92.7 million acres, which is 1.1 million acres below this average prediction. The market's reaction was sharp. From the week's low, Chicago Board of Trade (CBOT) corn prices gained 14% and reported the biggest weekly corn price gain since 2011. Despite the USDA predicting a larger wheat area than previously thought, world wheat prices followed corn higher. London wheat futures regained half their June losses.
Brazilian corn crops have endured a difficult season, hampered by adverse weather. Initially, persistent rains prevented soybean harvesting and led to significant delays for planting the second corn crop. However, once in the ground, the weather turned with heat and dryness damaging emerging crops and hindering their development. Now frosts are adding to the challenges facing ripening crops and analysts have made further cuts to their production estimates. This week, consultancy Stone-X cut a further 1.7 million tonnes from its 2020-21 estimate, which is now down to 87.93 million tonnes. This is significantly below the USDA June estimate of 98.5 million tonnes. Stone-X sees just 20 million tonnes available for export which is significantly below the USDA estimate of 33 million tonnes. This loss of crop for export has come in a season where Chinese corn import demand has jumped by over 18 million tonnes on the year. The US has been the beneficiary and this has helped drive prices up to multi-year highs.
Wheat crops in both Russia and Ukraine are reported to have appreciated the beneficial weather and this week we have seen increased production estimates as a result. Ukraine's Ministry of Agrarian Policy and Food said that 2021 grain production could reach record highs, exceeding 75 million tonnes. The Ukrainian Hydrometeorological Center sees a 17% rise in grain production to 75.8 million tonnes, up from 65 million tonnes in 2020. Wheat is seen rising to 28.5 million tonnes compared with 24.9 million tonnes in 2020. Corn is seen rising to 37.1 million tonnes from 30.3 million tonnes in the previous season. Russian wheat production prospects are seen improving, with the Institute for Agricultural Market Studies (IKAR) being the latest to increase its 2021-22 production estimate, which is up to 83.6 million tonnes from a previous estimate of 82 million tonnes. However, other analysts highlight that heat and dryness are affecting some Russian spring wheat areas with similar issues reported for Kazakhstan.
The last six weeks of trading have been characterised by high levels of price volatility. Paris rapeseed futures form the benchmark for pricing European trade and Europe saw a €70/t drop in new crop prices from mid-May to mid-June, as weather turned more favourable for global oilseed crops. However, since then prices have regained two-thirds of those losses, which sit comfortably above the key level of €500/t. In recent days, traders' attentions have been occupied by three main areas of concern: shrinking prospects for the Canadian canola crop, weather patterns in the major global oilseed producing nations, and the prospect of some increased certainty on stock levels provided by the key US Stocks and Plantings Report released by the USDA this week.
With Canada seen as a crucial supplier of canola into Europe next season, it is no surprise that European price movements are closely linked to Canadian values. Canadian canola markets are trading at near contract highs following a recent acreage report from Statistics Canada that increased its plantings estimates by 400,000 hectares from its April report. This was seen as disappointing given the price rises since the last report. With plantings now seen as more or less confirmed, there are continuing concerns over low soil moistures with little relief seen in forecasts that project more heat and dryness over the coming weeks.
Markets that trade against a background of plentiful stocks are always much less prone to influence from short-term weather patterns. This is currently not the case in many of the world's main oilseeds exporting nations, with some countries - the US and its soybean position being a prime example - operating with stock levels that are very close to the minimum required to get from one season to the next. In addition to North America, where rain is needed in the Canadian prairies, parts of the Midwest and throughout much of the US plains, traders will be keeping an eye on conditions in Russia, Ukraine, India, China and the rest of southeast Asia over the coming weeks.
The release of the USDA's Stocks and Plantings Report at 5.00pm (UK time) on Wednesday ended a tentative spell of trading, which included some book squaring ahead of the June quarter-end and a three-day holiday weekend in the US. The report was expected to be explosive and it didn't disappoint. It confirmed that US farmers have planted the second-largest combined acreage of soybeans and corn on record. Bean plantings came in at 87.56 million acres which was well short of pre-report trade estimates that averaged 88.96 million acres. Shortly after the release of the report, US soybean futures were trading 5% higher than Paris rapeseed futures, which had spent most of the day in undesirable territory. Values surged by over €20/t before settling to close up at a net €5/t on the day.
The supply of old crop beans has now dried up and most consumers have their summer demand covered. There is very little demand for any new crop beans, as buyers await the outcome of this year's harvest and insight into what values other mid-range proteins will start trading at.
Crops are still developing well with near perfect growing conditions. In some cases, crops are a little too thick. Preventing light getting into the crop to aid pod development is therefore advisable. Prices continue to follow the wheat market and will continue to do so until harvest begins, at which point further price falls relative to wheat will be expected.
Urea markets remain firm as India is expected to confirm 779,000 tonnes from its recent tender. This tonnage is still below government requirements, so another tender is expected very soon. Prices into various global ports are now hovering around $500/t in bulk. The UK market has followed the global urea trend and the European ammonium nitrate trend this week by moving up another £16/t for immediate and September delivery.
Gas and ammonia prices are now at five-year highs, adding pressure to prices, with gas not looking likely to drop in value in the short term.
Phosphate values increased again globally this week, but UK prices still don't reflect the true replacement costs. Potash prices have also increased on the back of demand.
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