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- World wheat prices continue to rise
US Chicago Board of Trade (CBOT) wheat futures rallied to a five-month high earlier this week. Since early August, CBOT wheat futures have risen in value by an impressive 12%; impressive, because many regard the world wheat market as bearish. The United States Department of Agriculture (USDA) sees world wheat stocks rising by 16mt this season to a record 317mt. This prediction follows significant production increases for Russia and Canada and predicted increases for Australia.
In contrast, recent Chinese buying of US wheat, corn and soybeans has lead to a wave of fund short covering, pushing US wheat futures higher. US wheat and corn sales this week were at the top end of traders' expectations, with approximately 600,000t and 2.6mt sold respectively.
Adding to the market strength are concerns for the US corn crop following the damaging storms three weeks ago and subsequent hot dry weather conditions. Agriculture commodity broker, Allendale, sees the US corn yield down to 178.28bu/ac and a crop of 14.98 billion bushels. This equates to 380.5mt of corn. This compares to a USDA yield prediction of 181.8bu/a, or a 388mt crop, in its August report.
There will be keen interest in the September World Agricultural Supply and Demand Estimates from the USDA next Friday, 11th September, which will provide updated production estimates. The latest Ukrainian corn crop production estimates from analysts are down to 35.1mt compared to the USDA prediction of 39.5 million tonnes. A sizable hole in world corn supply is likely to continue month on month.
- Black Sea prices rise
The most significant market event this week was the latest Egyptian wheat tender held on Thursday. Previous tenders held over the last two weeks saw Russian wheat offered cheaply in volume and Egypt snapping up around half a million tonnes in two August tenders. However, the offers made yesterday told a very different story.
Among several offers, the cheapest was for a 55,000t cargo at $240.50/t including freight for November. This was $12.50/t above the average of the previous tender and the only one Egypt bought. This highlights how Black Sea prices are now rising, reacting to strong export demand. It is estimated that Russia will have shipped 12 million tonnes of wheat by the end of September. Russia and its second-highest ever wheat crop, thought to be 82.5mt, is the primary bear world market driver.
Regarding Russia, it is important to note a statement from the Ministry of Agriculture of the Russian Federation saying that at least 10% of the Russian winter wheat area is in drought and soil moisture is too low for farmers to plant. Soil moisture maps suggest Ukraine and much of the EU are in a similar position.
- Canada expecting jump in wheat production
One of the world wheat market bear factors is the expectation of a large Canadian crop. The latest production estimates from Statistics Canada were published this week and they predict that Canada is set to produce its largest wheat crop for seven years, producing 35.7mt of wheat. This compares to the USDA August estimate of 34mt. Last season, Canada produced 32.35mt and was the fourth-largest exporter, shipping over 23mt. UK millers may well need to increase their Canadian imports to replace the depleted domestic supplies.
- Spring barley harvest makes progress , yields improve
Cutting is largely complete in the south and south east corner of England, with about 75-80% cut in regions up to the Yorkshire Wolds. Progress slows considerably when we reach north of Newcastle and throughout the Scottish borders. However, Aberdeenshire is 65% cut as of today, which is good progress. Yields have returned to surpassing pre-harvest expectations on springs, even with some heads left on the floor after the wind and rain of last weekend. England has one million hectares of spring barley sown. This means that for every 0.1t/ha yield increase, the increase in production is 100,000t. UK exportable surplus has increased over the last week or two.
- Feed barley prices disconnect from feed wheat prices
Barley has surpassed capacity for the UK feed compounders' ration for a long while now. Ever since barley prices hit £30/t under wheat, compounders would fit it in where they could. However, there are limits to its inclusion, because in the end, feed barley is sold to a pellet specification and needs to achieve all parameters. Too much barley in the ration won't help achieve that. Recent sales have hit £39-40/t under wheat in places. Compounders will, however, get as much barley into the ration as possible and domestic consumption will increase again this year.
- Malting quality holds up in the later cut areas
Recently cut malting barley in the English Midlands has suffered in the wet weather and has lost much of its germination. Much of the crop here was grown for feed, but it does mean malting premiums have picked up from the pre-harvest lows. However, north of the Humber, where crops were sown later and matured slower, germination results are generally of an acceptable standard with the exception of a few failures. Currently, Scottish quality is holding up and, if the forecast maintains a dry pattern, should come off with a normal pass rate.
- Stable domestic prices
Once again, there has been no change in domestic rapeseed prices this week. European prices, in euros, have risen in recent days, but a firmer sterling has taken away any benefit that might have been seen at the farm gate. The stability of prices in 2020 has been quite remarkable given current events, including the impact on demand during the global Covid-19 lockdown and the historically small crop output in the UK and Europe from the 2020 harvest. For context, the UK rapeseed crop was estimated to be 2.17mt from harvest 2017 but is forecast to be as low as 1.12mt from this year's crop.
- High import requirement
There is no doubt that the domestic crushers will still be relying on good flows of seed off farm this side of Christmas, but a combination of high front end imports and the plant at Erith currently being off line has lessened the impact of a small UK crop. Due to the smaller UK OSR crop, the UK will need to import around 700,000t of seed in 2020/21, but currently, the delivered Liverpool market is trading at a £5/t premium to the cost of a dockside cargo from abroad. In other words, the internal market is fully valued up to the cost of imports and it's difficult to see any reason that our market would increase unless there were changes in exchange rates or external markets.
- Dry conditions impacting prospects for 2021
European markets have been firm on a number of factors. There is no doubt that we are continuing to see a recovery in demand for both human consumption oils and biodiesel from the low point at the height of the global lockdown. The Chinese continue to be aggressive buyers of US soybeans with reports suggesting that Tuesday saw eight to ten cargoes of US soybeans booked to go to China in a single day. South American supplies are currently not being offered so aggressively in world markets due to the Brazilian Real hitting a 4-week high and dry conditions seen extending in key production areas for the next two weeks.
Finally, although it may seem a bit early to be worrying about next harvest, traders are concerned about dry conditions across most of Europe and the Black Sea regions, which is adversely impacting the germination of winter sown oilseeds in these areas.
- Harvest weather stalls already lethargic values
With most spring beans and plenty of winter beans and peas from Lincolnshire upwards yet to be cut on farm, values have stalled as the trade waits to determine overall quality and yield of the crop. Feed beans remain around the £195-200/t ex-farm mark with the best quality samples achieving premiums of around £20/t. Similarly, peas haven't seen much change in values, with quality large blues trading around £240-255/t ex-farm depending on sample and position of sale. Meanwhile, feed peas remain suppressed by feed bean values and are trading around £185/t ex-farm. There are some limited opportunities for bleached large blue samples. If you are interested, please discuss with your on-farm contact.
This week, we see further news coming from India regarding the latest urea tender. This week, the country has managed to secure around 1.7mt of urea for shipment by 5th October with China being the major supplier, providing approximately 900,000t. Many believe this could be a positive move in the market, as China has not really figured in recent tenders. If the $280/t free on board (FOB) market is encouraging Chinese producers to supply India, then perhaps further tonnes will be available going forward. This may put the brakes on any further price rises in the short term. The alternative view is that China will struggle to supply the urea by the 5th October, leaving India short and having to come back into the market sooner. India still requires around one million tonnes per month from November through to February to keep up with local demand.
European nitrate producers continue to watch the urea situation but have their own production concerns to battle with. Imported ammonium nitrate offers to the UK are now focussed on December onwards with values unknown whilst producers sit and watch what the next move might be in the UK. With a firming wheat market, return on investment of nitrogen compares well today, but we need to keep an eye on the firming European nitrate prices.
Last week's poor weather reduced farm gate interest in PKs and, luckily, a firming sterling kept prices mainly flat, so no real changes have been seen on PK/NPK prices. Issues in Belarus and the US are still possible concerns and may push prices higher with very little notice. Currency rates are also a watch as sterling's recent run could come to an end. As always, speak to your Frontier contact for more information.
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