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- Markets recover early week losses
Rain arriving in the UK, northern Europe and Black Sea countries has been viewed as beneficial for the drought-stricken wheat crops in these regions, triggering a wave of selling on wheat futures markets earlier this week.
UK prices suffered particularly, losing as much as 40% of the gains they made during May. Values were not helped by the 1% gain of sterling against the euro. However, there was a notable turnaround on Thursday, led by wheat futures from the US Chicago Board of Trade (CBOT), which rallied to a six-week high. The continuing weakness of the US dollar is beneficial for US wheat exports. The latest weekly export sales, which reached 616,800 tonnes of combined old and new crop, were close to meeting top-end expectations.
Concerns for developing wheat crops in the southern plains were heightened by moderate drought for Kansas, which extended to 27% of the state. In addition, temperatures are forecast to soar next week.
Despite the euro gaining over 2% against the US dollar this week, the futures of French futures exchange house, MATIF (Marché à Terme International de France), regained all early week losses, as traders assessed the mixed benefits of recent rainfall in Europe.
However, attention switched to the prospects for wheat crops in southern Russia and southern Ukraine, where temperatures are forecast to reach a damaging 32-34°c next week while Russia's domestic wheat prices are already at a record high.
Meanwhile, not all UK farmers enjoyed the beneficial rain which was forecast and UK wheat futures regained half their early week losses. These losses were supported by a weakening sterling, leaving the market mindful of the significant 2020/21 season need for wheat imports.
- Mixed messages from Ukraine
The Ukrainian Ministry for Development of Economy, Trade and Agriculture made a prediction earlier this week that the country's 2020/21 wheat harvest is likely to fall around 18%, bringing the total to 23.2 million tonnes. Exports are also predicted to fall by more than a quarter, to a total of 14.9 million tonnes.
However, these estimates were subsequently countered by the Ukrainian agricultural consultancy ProAgro, which increased its crop estimate for the Ukraine to 26.7 million tonnes from its previous estimate of 25.4 million tonnes. Furthermore, ProAgro increased its export estimate from 17 to 18 million tonnes. This figure is still well below this season's exports, which are expected to be 20.5 million tonnes.
Some indication of the damage to wheat crops caused by prolonged dry weather in this area of the Black Sea can be seen in Moldova, which is sandwiched between Romania and Ukraine. Last year, the country produced 1.1 million tonnes of wheat, but this week, Moldova's Ministry of Agriculture, Regional Development and Environment cut its 2020 crop estimate almost in half, down to 600,000 tonnes. Moldova's domestic consumption is 350 kilotonnes.
- Egypt begins 2020 import buying campaign
Egypt, the world's largest wheat importer, purchased its first new crop wheat shipments yesterday from the Ukraine, which submitted the most competitive tenders. Delivery is for 1st to 15th July. The two 60,000t cargoes that the Ukraine offered were $2 below the cheapest Russian offer and $7.50 below the only offer made from France. On a delivered basis, the sales values were, on average, $220.65, which is more than $30/t below the prices Egypt paid back in April on its last import purchases. The UK stands alone as the only country where new crop is at a premium to old crop.
- Maltsters absent from market
The dry weather in the UK is causing concerns, not only around barley yields, but also potential malting quality. Rainfall for Scotland and the north of England this week has been extremely useful, but large areas of England remain very dry.
Maltsters remain largely absent from the market due to demand falling as a result of Covid-19. It remains uncertain how long this fall in demand will last and it is difficult to forecast the decline in demand for 2020. Estimates range from 20% to 40%.
This week, the Agriculture and Horticulture Development Board (AHDB) released figures showing that UK maltsters had used 28.1% less barley this April compared with April 2019. Even with yield estimates being revised to account for the lack of rain, the supply and demand of malting barley would still point to ample supplies, given the size of the potential barley crop.
It should also be highlighted that as much as 250,000 tonnes of additional malting barley could be carried into next season in merchant, maltsters or co-op stores. This would equate to around 13% of the total average UK domestic malting demand, although this percentage will be higher if malting demand falls lower. This extra carryover tonnage is likely to weigh heavily on malting barley values and has the potential to create logistical challenges at harvest.
- Planning for 2021
Looking forward to 2021, Frontier is currently offering guaranteed minimum premium brewing malting barley contracts for both winter and spring malting barley. The winter barley contracts are for the variety Craft and the recently fully-approved variety Electrum, while the spring contracts are for the varieties Planet and Laureate.
These schemes offer a low-risk yet flexible marketing and risk management strategy, giving growers the ability to fix their base price whenever they wish, arming them with the knowledge and reassurance that they have a guaranteed minimum premium for their malting barley. With all the uncertainty around malting barley in the post-Brexit market, this is a strong option for maltsters.
- Strong markets in May
Last month proved to be a strong period for the UK's rapeseed producers, with markets gaining £20/t during May. Part of this shift was down to a 2.5% devaluation in sterling, but it is also partially due to a notable change in sentiment. European motorists are getting back in their cars, which is helping demand for the 60% of rapeseed that goes into the biofuel sector. Producers also anticipate the prospect of pubs, cafes and restaurants reopening over the coming months.
It is not expected that demand will fully recover during 2020/21, but the prospect of a small EU crop, increased import requirements and a tight global rapeseed year-end stocks-to-use ratio have all been enough to keep markets on the front foot.
- Price of imports paramount
Of course, price is only one half of the equation in terms of overall returns from the crop. As prices rose during May, crops in many areas were suffering in the hot, dry weather, but oilseed rape has a deserved reputation for being a crop with remarkable powers of recovery. Thankfully, we are now in a cooler, wetter spell of weather which is forecast to continue into next week. However, we have seen a flat domestic market for rapeseed this week, despite slightly weaker sterling and a rise of around €3 in continental futures prices. In the longer term, the UK market will track the futures prices of its neighbours, as the UK and the EU have a substantial import requirement in 2020/21. However, in the short term, the rain has brought out a few sellers.
- Assessing the impact of the dry spell
Given the end of the hot, dry weather, the pulses market is now trying to assess what impact it has had on yields. Dried pea crops can usually survive hot, dry conditions better than beans, but numerous reports have suggested a reduced number of flowers per vine and, in some forward crops, only 2-3 peas per pod rather than the average 5-7.
Winter beans that were drilled in good time last autumn are all in full flower and although the crops are shorter than usual, as long as we now get some rain, we would expect to see average yields. Spring beans make up 75% of the total bean crop and, whilst the late-drilled crop generally germinated well, crop development has been stunted by the hot weather. Flowering and pod set are both very close to the ground and could make combining very challenging. Hopefully, the wetter, cooler weather will allow for some stem elongation to lift the crop, as well as give us some good pod fill.
As noted in last week's report, new season nitrogen prices have stimulated high demand for products and the early season offers are expected to be closed fairly soon, possibly even this side of the weekend. However, at the time this report is being written, there are still opportunities to buy products at these new season levels.
Most discussion is around a firming gas price as we move into the later part of the year. Furthermore, Brexit is still on the agenda, with possible tariffs and duties on imported fertiliser products into the UK on the horizon. Starting at a £50/t drop from last year will make upwards price movements more likely than any further drops. Urea offers to the market have been quieter, with no change to the previous weeks' prices. This week has been all about ammonium nitrate orders and nitrogen sulphur systems.
Currency will be the key influencer on wheat and fertiliser over the coming weeks and months, so keep your eye on exchange rates.
- Challenging growing conditions likely to affect seed crop yields
Lower plantings and extremely challenging growing conditions are likely to affect seed crop yields and variety availability this autumn. National seed crop plantings have seen a 25% reduction compared to last year, as the wet autumn and winter conditions limited drilling opportunities. The very variable state of those winter crops that were drilled has been placed under further pressure by poor headland establishment, water logging during winter, and the very dry spring conditions.
- Autumn supply of available seed low
This reduction in seed crop area and potential yields will lead to a lower supply of available seed for drilling this autumn. Sought-after varieties are likely to sell out early, particularly those with desirable agronomic features, such as strong disease resistance or early-sowing potential. Seed varieties for the quality Group One and Group Three markets may be in particularly short supply due to a decline in the seed crop area producing these grades. The overall picture is one of reduced availability and a rapid shortening of variety choice. Growers would be well-served by speaking to their Frontier farm trader or agronomist to secure their preferred varieties.
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