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- USDA shocks markets
The United States Department of Agriculture (USDA) surprised markets at the end of March 2020 when it published its US quarterly stocks and acreage report. It estimated that US farmers would significantly expand their corn planted area. The estimate predicted the planted corn area would be 7.3 million acres greater than last year, when prolonged rainfall kept farmers out of the fields.
Using this data, the USDA, in its first world supply and demand estimates for 2020/21, increased the US corn crop estimate by 59 million tonnes on the year, bringing the total to 406 million tonnes. It also increased year-end stocks by 31 million tonnes, bringing this total to 84 million tonnes – the highest production volume since 1983.
The prospect of plentiful US corn crops has been a major bearish factor for world wheat markets in recent weeks, particularly considering that drilling has been completed in good time and the developing crop is in very good condition.
On Monday, the USDA reported that 73% of the crop was rated 'good' to 'excellent', compared with only 56% last year. Speculators have been trading heavily and have built significant short positions on US corn futures. The promise of a giant US crop to force prices lower is expected, enabling traders to buy back their short and profit.
However, earlier this week, the end of June US quarterly update from the USDA cut the US planted corn area estimate to just 92 million acres. The loss of five million acres from the previous estimate raises a number of questions; the loss of acreage is the equivalent of losing between 20 and 25 million tonnes of the 2020/21 US corn crop output. The data triggered a wave of short covering on the US corn futures market which rallied 10% and recovered all the losses made since March. This doesn't necessarily change the bearish outlook for US corn, but it is a major dent in the side of one of the bearish factors that has influenced world wheat prices in recent weeks.
- Smallest US wheat area on record
The USDA quarterly stocks and acreage report also highlighted cuts in the US wheat planted area for the 2020 harvest. Average trade estimates ranged between 44 and 46 million acres, but the all-wheat area is now predicted to achieve 44.3 million acres, which would make the acreage the lowest since records began back in 1919. This is primarily due to a reduced spring wheat area, which is currently predicted to achieve 12.2 million acres in comparison to the 12.6 million acres predicted in the previous USDA estimate.
- Concerns for dry Argentina
Prolonged dry weather has reduced soil moisture for freshly planted wheat crops and may reduce the overall area drilled to wheat, according to the latest update from the Buenos Aires Grain Exchange. It sees 71% of the crop now planted, up from 58.1% last week. However, due to the dry conditions, the Exchange has cut its wheat area estimate to 6.5 million hectares, down from 6.7 million hectares in its previous estimate. Argentina is one of the world's major wheat exporters and, in its June World Agricultural Supply and Demand Estimates, the USDA saw 2020/21 Argentinean wheat production rising 1.5 million tonnes on the year to 21 million tonnes in total. Exports are predicted to rise by one million tonnes to 14.5 million tonnes.
- Ukrainian export quotas
The Ukrainian government and grain exporters signed a memorandum on grain trading rules this week for the 2020/21 season. Rules remain unchanged and the expected wheat export quota will be set on the 10th August. This was expected to be 17.2 million tonnes compared with the 20.5 million tonnes confirmed as shipped this season. This is up 31% on last season.
Early-harvested crops in the Ukraine are reportedly showing poor yields compared to last year, as is the case in Russia. Quality and yield results in France are mixed as the wheat harvest reaches 4% complete. The crop condition remains stable, with 56% rated 'good' to 'excellent'. This is well behind last year's 'good' to 'excellent' ratings, which were at 75%. Early yield reports from Romania are more encouraging and exceed expectations.
- A quiet period on the barley market
The malting barley market remains very quiet, with nominal values falling this week. However, a lack of buyers is making the market hard to define. It is unlikely this quiet period will change until winter malting barley harvest starts in the next couple of weeks. However, it should be noted that demand already feels limited. UK pubs are able to reopen from 4th July, which is good news for the whole industry; nevertheless, it remains to be seen when consumer habits will return to normal. The industry is still anticipating the fall in demand to last for some time.
- The calm before the harvest storm
Similar to malting barley, it has been a quiet week for feed barley; the calm before the harvest storm! Despite feed barley being at a large discount to feed wheat, domestic buyers remain largely absent. The UK will have a sizable surplus of barley to export at a time when UK barley is not competitive on the world market. All recent North African tenders have been covered from Black Sea origins. With Spain and Portugal absent from the market due to good growing conditions locally, demand for UK barley is currently limited.
- Winter and spring malting barley contracts offered by Frontier
Looking forward to crop 2021, Frontier is currently offering guaranteed minimum premium winter and spring malting barley contracts in many areas. These contracts offer a low-risk yet flexible marketing and risk management strategy, giving growers the ability to fix their base price whenever they wish, and the knowledge and reassurance that they have a guaranteed minimum premium for their malting barley. This represents a good option with all the uncertainty in the malting barley market post-Brexit. For more information, please contact your local Frontier farm trader.
- Bullish USDA report
The key focus of interest in oilseeds markets this week has centred on the release of the USDA's June stocks and plantings report. Stocks for US soybeans came in much as expected, but the planting figures for all of the major crops, including soybeans, came in much lower than traders had anticipated. The soybean area was pegged at 83.8 million acres against pre-report trade estimates, which averaged 84.8 million acres. This sparked a flurry of buying on US markets, with prices moving up by over 4% in recent days to levels not seen since the early days of March. UK OSR prices have followed to a lesser extent, but much of the benefit of firm global markets has been taken away by a stronger sterling.
- Opportunities for HEAR with Frontier
Most of the rapeseed crush activity in the UK is aimed at producing high-quality oils for use in the food industry. However, a significant minority of the UK crop, usually around 5%, is grown specifically for industrial applications, including for use as slip agents, lubricants and in printing inks. The varieties used in this process are naturally high in erucic acid and the produce is commonly known as High Erucic Acid Rape (HEAR).
The management of HEAR is the same as for conventional rape, but Frontier's varieties are known for their early vigour and establishment traits, which help to combat pressure from flea beetle. Demand for this product is increasing and Frontier currently has space for new growers on our non-defaultable £88/t premium over conventional rape contracts, for those who have storage. There are also terms available for harvest movement. If you are interested, please contact your local farm trader or agronomist.
- Values soften this week
With improving growing conditions for beans and more confidence from growers regarding potential yield, we have seen some softening of values during the past week. Feed bean levels are still over £200/t in most areas of the country. However, with good growing conditions continuing, this may be short-lived.
- Global Pulse Confederation crop forecast released
This week, the Global Pulse Confederation announced its crop forecast for the main world faba bean growing areas. Australia is now way ahead of last year with a potential crop of 459,000 tonnes compared to 388,000 tonnes last year. Meanwhile, whilst the UK crop is forecast to drop from just over 600,000 tonnes last year to 522,000 tonnes this year, the drop is more than compensated for by increases in the Baltic states, Germany and Canada. For Egypt, the main importer, demand has fallen due to reduced consumption and a ban on exports of its own quality white beans. In the UK and globally, there is a general picture of increased supplies and falling demand which will continue to put further pressure on values.
It's been a much quieter week in the nitrogen market following the recent activity on new season sales for both solid and liquid fertiliser. Global urea markets have firmed slightly this week following completion of another Indian tender. In this tender, more than 500,000 tonnes were committed by producers at levels higher than previously achieved. This, combined with weaker sterling, has meant little or no activity has been seen in the UK this week from importers, who are taking their time to react to the recent price rise imposed by CF Fertilisers.
Liquid fertiliser prices for summer tank fill were withdrawn this week and we expect new levels to be released early next week to include prices through to spring 2021.
Prices for both phosphate and potash look attractive at the moment, with no major movement seen this week. With both TSP and MOP trading at rates that are almost at the lowest they've been in the last ten years, it would be a good time to secure volumes for autumn use.
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