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- Rain triggers profit taking
World wheat markets have made impressive gains in price since harvest, highlighted by US Chicago Board of Trade (CBOT) wheat futures which, by the end of last week, had gained over 25% in value. This is impressive as the United States Department of Agriculture (USDA) estimates a record world wheat crop of 733 million tonnes - up nine million tonnes on last year. Furthermore, USDA estimates see stocks rising by 22 million tonnes on the year to 321 million tonnes. Price gains have been generated by both strong international demand and a record-breaking export pace from Black Sea regions. Prolonged dry weather and dry soils in the US and Russia have added to the bullish sentiment in recent weeks, raising concerns for newly planted winter wheat crops.
However, the arrival of rain, which is predicted to last a few days in the dry central and southern US plains this week, as well as rain in Russia, has been the turning point for US wheat futures.
The rain, deemed beneficial for recently planted crops, triggered a wave of profit taking and prices declined by 5%.
US winter wheat crop ratings were published on Monday, revealing drilling to be ahead of the average pace at 85% complete. However, only 41% of the crop was rated 'good' to 'excellent', compared to 56% last year. This is the worst rating for this calendar week since 2013, which was 40%. However, the poor outcome did not affect the price decline that extended through the week. Russian winter wheat planting reached 95% of the intended area.
- IGC drops world wheat and corn stocks
The International Grains Council (IGC) published its latest world grain balance sheets yesterday, making revisions to production, use and stocks for corn and wheat on last month. Wheat production estimates have been raised by one million tonnes, bringing the new total prediction to 764 million tonnes. However, with increases to consumption estimates of three million tonnes, the IGC predicts year-end stocks will be down three million tonnes on last month at a total of 291 million tonnes. This new value is still 13 million tonnes up on the year.
Corn production is seen to be lower than last month by four million tonnes, bringing the total to 1,156 million tonnes. Stocks are also down six million tonnes to 279 million tonnes. This is 18 million tonnes down on last year.
For Ukraine, the production estimate from the IGC may prove too high at 33 million tonnes. Private analysts, accounting for the poor yields seen so far this harvest, estimate the Ukrainian corn crop will be as small as 27 to 29 million tonnes. If this proves to be the case, the USDA could have a significant hole in its 2020 world corn production estimates next month. In October, the USDA estimated Ukraine would harvest 36.5 million tonnes of corn.
EU corn production may also prove to be lower than expected, with the EU crop monitor Monitoring Agricultural ResourceS (MARS) cutting its corn crop yield from 7.83t/ha to 7.42t/ha as the harvest reached 88% completion.
- Egypt at the mercy of strong markets
Further highlighting the scope of the rise in world wheat prices in recent months was the Egyptian tender held last Friday. Results of the tender were published late in the day and the prices paid must have been very concerning for the world's leading wheat importer. Egypt bought three cargos of the most competitive offers from Russia. The 165,000 tonnes averaged a cost of just over $278/t including freight for December arrival. This is a huge $29/t above the prices Egypt paid in its previous tender held at the end of September and almost $50/t ahead of its purchases at the same time last year. The scale of the price increase between this and its previous tender was the biggest the country has ever had to pay to secure the essential supplies it needs.
- A quiet export market
It has been a much quieter week on the barley export market as a stronger sterling against the euro has taken the edge off UK export values. Vessels continue to arrive around the UK coast. However, these are for delivery to destinations inside the EU and also to third party destinations. This demonstrates how active the export trade has been in the last month or so.
A slight dip in UK feed barley values has seen the UK compounder taking more cover, mainly from January to June, but also with a little crop 2021 thrown in.
- Feed barley export position uncertain
Good volumes of feed barley continue to come to the market, particularly for November and December movement. As the UK and EU governments continue to try and thrash out a trade deal, growers should not neglect prices for January onwards as the market still shows a carry at the moment. Until trade talks are concluded, continued uncertainty as to the export position from the UK into the EU from January onwards will remain.
- Malting barley market quiet for the foreseeable
The UK malting barley market remains quiet. There is some buying interest for November and there is a steady trickle of new barley onto the market. A combination of variable malting barley quality on farm and industry uncertainty around demand due to increased lockdowns across Europe means this situation is unlikely to change in the near future.
- Domestic prices lower
Last week the talk amongst traders focused on global markets hitting contract highs. This week has seen a sharp correction that has dropped UK rapeseed prices by £7/t. Weather patterns are now seen as more favourable for the production of oilseeds, with rain in South America, eastern Australia and in the key production areas around the Black Sea. Combined with above-average temperatures throughout Europe, there is more optimism for Southern Hemisphere output of all oilseeds and reduced concerns about the condition of the recently sown European rapeseed crop.
- Demand concerns
The key story, though, is developing on the demand side of the market. After months of heavy buying, China has suddenly reduced its interest in US soybeans just as most of Europe appears to be heading towards a prolonged period of lockdown. This measure had a devastating effect on the demand for vegetable oils last spring and there are concerns that any setback for the commercial food sector will have a direct impact on crush requirements. In recent days, markets have been further spooked by falling energy and equity prices, creating an atmosphere of 'risk off' amongst the institutional, or speculative, investors who have recently been running record long positions.
- Market fundamentals remain supportive
After a bull run dating back to last March, it feels as though we are moving into a more volatile, choppy period. For the UK, Brexit trade negotiations are bound to have an impact on the value of sterling in the coming weeks, but longer-term market fundamentals remain supportive. All markets go through periods when prices reverse and it is too early, given tight global inventory levels, to call this a bear market.
- Inland values remain stable
Feed bean values drifted lower this week as the initial wave of vessels loaded their October contracts. There are far fewer exports planned for November. Inland values remain stable, however, as with higher protein prices in general. One or two compounders are now looking to incorporate beans into cattle and sheep rations. This demand will be restricted due to the limitation of raw material bins at most feed compounding sites.
- Demand limited for human consumption beans
Human consumption beans continue to trade in small volumes and relatively small premiums over feed as demand is limited to the challenging bagged bean market into Sudan. With minimal production capacity and a lack of better quality spring beans, this demand is likely to dry up in the new calendar year.
The new terms introduced by CF Fertilisers and Yara last week, in conjunction with increased drilling, created some regional activity. However, the weather has again slowed the market down. As we move into November, the tight supply of nitrates right across Europe due to plant production issues is starting to take hold, with a large backlog still to be delivered.
The forward demand, given crop plantings, remains high in Europe. However, with producer stocks being much lower than average for the time of year due to manufacturing issues, as well as a backlog of orders and gas prices being 30% higher than quarter four of last year, it's only a matter of time before delivery months sell out and prices move up by default. It's also not clear the effect Covid-19 will have on supplies from France and Germany given the new lockdown restrictions, or indeed the effect on the UK supply chain with the reports of increased cases of Covid-19.
When this supply and demand information is taken into account, along with the fact there are only 62 days - including 38 delivery days - until Britain leaves the EU, it's advisable for growers to discuss their requirements now, before markets firm.
Demand in the UK, as in the rest of the world, is good due to historic low prices. Phosphate has moved up in price as producers increased levels. However, some of this is offset by an improved exchange rate of sterling against the dollar. Potash remains flat. In general, prices are set to firm into the first quarter of 2021. With the uncertainty of Brexit, growers are advised to buy before Christmas at these current lows and not wait until spring.
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