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The new year hasn't been positive for wheat markets. Chicago Board of Trade (CBOT) opened on the first trading day with heavy losses, as speculative funds started to rebuild short positions. European markets followed US markets lower, with Paris wheat futures setting new contract lows.
Plentiful old crop wheat supply and stalling demand has encouraged selling but there is also a bright outlook for 2024 US winter wheat which adds a particular bearish element. Kansas is the number one winter wheat producing US state and the crop condition there has improved by seven points since the end of November - up to 43% 'good/excellent' as of 31st December. That compares with a condition rating of just 19% at the same point last year.
Crops in Oklahoma have improved by an even greater amount - up 14 points since the end of November to 67% rated 'good/excellent' which is well ahead of just 38% last year. Texas has also improved by three points to 49% rated 'good/excellent'.
Last season, US winter wheat crops entered the winter period in the second worse condition ever recorded, but subsequent beneficial weather improved crops through the winter and spring. Next week the United States Department of Agriculture (USDA) will update its US winter wheat acreage estimates and there's the potential for surprise.
UK wheat prices followed world market prices lower during the first week of the new year, despite continuous heavy rain harming 2024 crop potential. The cheapest UK feed wheat prices sit at least £10/t above those needed to secure export sales, despite the near positions being choked with over supply.
Domestic demand remains in question with lower animal feed compounder use and falling ethanol margins; pointing towards a likely carryover of up to three million tonnes. This figure is almost double that needed to meet the needs of domestic consumers, but that surplus could be required to meet the demand for next season.
Continuous rainfall has left notable areas of arable land without a winter wheat crop planted and where it has been, extensive flooding is damaging establishment. This week, trade organisation COCERAL estimated a 2024 UK wheat crop of 13.2 million tonnes which compares to 14 million tonnes last year. That would seem optimistic given that the successful wheat cropped area may be 25% lower.
London wheat futures for November 2024 are currently trading £12/t above old crop May 2024 levels. Whether that is sufficient to encourage farmers and the trade to carry crop remains to be seen.
Very little has changed in the feed barley market since the festive break.
The UK is still not export competitive and had shipped 315,000 tonnes of barley by the end of December '23 compared to 550,000 tonnes for the year previous. This suggests that the UK still has a large part of its exportable surplus to find a market for.
Compounders are well covered until February/March. Even with feed barley at a wider discount to feed wheat - £25-£30/t depending on location - the ability to buy extra demand in domestic feed rations is reducing as most of them are at maximum barley inclusion rates.
According to the Agriculture and Horticulture Development Board (AHDB) Early Bird Survey, the crop '24 winter barley area is set to fall to 423,000 hectares - down 7% from crop '23.
The spring barley area is forecast up 11% year on year, but it's still early days to be forecasting a significantly larger UK barley production number given no spring barley has yet been planted.
Domestically, feed barley has been trading at around a £22-£24/t discount to feed wheat for new crop - a wider discount than we would often see at this time of season. With a smaller wheat crop and larger barley crop, this discount is likely to remain wide so that feed barley prices are more competitive in domestic feed rations.
Old crop malting barley values continue to trade at historically attractive premiums over feed barley, especially into domestic malting barley homes.
Maltsters are now relatively well covered for the remainder of the season, with brewing demand especially sluggish. On paper, the UK still has a sizable exportable surplus of malting barley, however, uncertainty over how germination will hold as we move into the new year continues to give the market a degree of ambiguity.
If you have malting barley still on farm, make sure that you're still taking regular samples to monitor quality and ensure it's not deteriorating.
Looking forward to new crop and with a sizable spring barley area forecast, malting premiums look to be under pressure and buyers are seemingly in no hurry to be pricing. They're likely thinking there may be a further downside in prices, however, with no spring barley planted and plenty of eventful weather possible between now and harvest, there is time for some volatility in the new crop malting barley market.
Oilseed values remained unchanged over the last two weeks. Farm selling has increased slightly this week, but the market continues to be relatively quiet and most domestic crushes are covered for early quarter one.
The market did manage to trade higher briefly, mainly due to weather and production concerns from Brazil. However, these worries have since subsided as the weather has turned more positive and South America is still on track to have higher oilseed production in 2024 than 2023.
The supply situation in Europe is similar with large rapeseed supplies and the end of January/early February will see Australian supply come onto the market. Crude oil is trading lower this week which does not help crush margins but with ongoing issues in the Red Sea, it is hard to accept it will be trading much lower.
Europe saw a record of rapeseed being processed in 2023 - up 8% compared to 2022 from 22.58 million tonnes to 24.41 million tonnes. This has been helped by the low commodity price and high crush margins supported by meal and oil values.
Domestic and European growers are still behind the pace on what they have sold and at current price levels this doesn't look set to change, which should add some support to these lows.
Although the demand picture is positive and farmers are not volume sellers, it is hard to see much appreciation in values with such large global supplies.
Growers are keen to sell their crop and domestic demand has started the year strong, still supporting these high values.
Most consumers are covered for early quarter one, with them now looking at their commitments from February onwards. We expect the market to run short of supply as we head into the summer months and the market is reflecting this with larger carries for movement from May onwards.
The Australian bean harvest is now complete and offers are in the market at levels below UK and EU origin. There are issues in the Red Sea to be mindful of and if things escalate this could cause a rise in Australian offers. However, with their quality being much better than the UK, we expect there to be little to no demand for UK origin this year.
Offers from suppliers are always limited in the first few days of a new year. The Christmas break seems to extend to the second week of January but given the continued wet weather that's not an issue.
The only major buyer returning to the urea market is India, which once again will set the market direction for the next few weeks or months. Two million tonnes are on the country's shopping list but whether that is met will depend on the appetite of producers to supply at low numbers in the early new year.
Freight rates are generally higher from some regions due to the concerns from ship owners passing through the Red Sea. Due to lack of demand from European markets and elsewhere, a good deal could be had for the major player.
For the UK market, low demand will continue until the weather improves. Suppliers and producers will have to wait for the demand to come back before importers ship any more product to the UK.
UAN suppliers continue to be on a POA basis following the Christmas break. With no significant market changes in recent weeks, values are expected to remain unchanged from the earlier offers released in quarter four of 2023. If you've got tank capacity and would like to take delivery of product pre-usage, we recommend you discuss the terms available.
In the absence of demand, the only products that feel under-valued are TSP and DAP - all as a consequence of the Middle Eastern conflict limiting supply of these products.
MOP remains flat with only currency exchange rates affecting prices. Expectations are that as in previous years, the longer demand stays low the shorter the window to get product delivered onto farm for usage.
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