- Minimal coronavirus impact
Despite the increasing spread of coronavirus and concerns surrounding its potential impact on demand, world wheat markets have managed to tread water this week with overall minimal change. International trade does not appear to have been affected yet, with importing countries such as Tunisia, Korea and Thailand continuing to make wheat purchases.
Although Friday morning saw price volatility, US wheat futures were trading within one cent of last week's closing prices. Concerns may be greater for supply rather than demand. Furthermore, a Chinese government working group stated that farmers must not let grain output decline this year despite coronavirus ensuring food security.
- Sterling improves UK prices
UK wheat prices have rallied this week, bouncing back from the coronavirus affected sell-off last week. London wheat futures recovered £4/t from Friday's low point, encouraged higher by the weakness of sterling versus the euro. The unstable UK weather conditions are raising questions over spring plantings and, with winter drilling now complete, prospects for a 2020 wheat crop between a little over half of the 2019 crop is looking likely. Significant wheat imports will be essential next season with the value of sterling proving a major price driver. Weaker sterling leaves imports more expensive and allows domestic prices to rise. Despite a small crop, sterling strength would make imports cheaper and add pressure to domestic prices.
- Dry weather to affect Black Sea region
Analysts have been highlighting the potential for increased wheat crops for 2020 from the Black Sea and a big jump, particularly in Russia, which could weigh on world prices. This follows a prolonged spell of settled autumn weather that allowed farmers to extend their winter drilled area and a gentle winter that minimised winter kill to date. Only 6% of Russian wheat has been rated poor but there are now concerns regarding dry soils. Researcher and consultant SovEcon stated that Russian soils will require rain which is not forecast in most parts of Russia and Ukraine over the next two weeks. Wheat crop ratings in the Ukraine are worse, with 11% seen weak. The Ukraine Grain Traders Union expects its 2020 wheat production to go down to 25.8 million tonnes from 28.2 million tonnes in 2019.
- Australia wheat production to bounce back
After three drought years, recent extensive rain has led the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) to have a positive outlook on prospects for 2020. It estimates that Australia will produce an additional 40% of wheat on 2019 with crop rising to 21.3 million tonnes.
- Weather continues to impact Europe
New crop barley markets continue to be bearish on the prospect of a large spring barley area. The area getting sown is weather dependent and, based on current field conditions, it is unlikely that barley will be sown on some of the most heavily affected land until April. In Europe, recent rainfall is also impacting drilling progress. Only 30% of spring barley has been sown in France versus the 70% that had been sown this time last season. It remains to be seen if French farmers will continue to sow spring barley or opt to sow maize or sunflowers instead. In Scandinavia, conditions are also wet but this has not yet caused concern to the market.
- Currency swings continue to affect markets
Export demand was picked up by the Black Sea this week, with both Tunisia and Jordan expected to be supplied from the region. Russian values have been helped by a weaker rouble against the dollar, whilst UK values have been hampered by the firming of sterling against the dollar.
- Coronavirus uncertainty
Following the continued spread of the coronavirus, consumers around the world are taking precautions and avoiding sociable drinking occasions which will undoubtedly impact alcohol sales and the wider malting barley market. Although still unknown, the impact will likely be significant. UK maltsters are now unsure of malt off-take and what their requirements in both the short and medium-term will be.
- Weak global oilseeds markets
There is a noticeable difference in oilseeds markets between short-term sentiment and the long-term fundamentals of supply and demand. Markets are suffering from the diminishing demand caused by the spread of coronavirus, whilst traders are tackling the issue of a large South American soybean crop. The main negative influence on soybeans has been the sell-off of Brazilian currency which has lost 5% of its value since the middle of last week, hitting an all-time low in the process. This has made it difficult for US beans to compete into China in particular. The last United States Department of Agriculture (USDA) projection for US bean exports to be up by 4% in 2019/20 appears to be optimistic given that it is currently running at 13% down.
- Domestic markets supported by weak sterling
With so much weakness in global markets, it is surprising to be able to report marginal gains in domestic prices over the course of the last week. This is solely down to the weakness in sterling during the past ten days which has seen a 4% devaluation against the euro. Although UK crushers are well covered for old crop supplies through to the end of June, the cost of any new imported seed would be approximately £15/t more expensive than if sterling had remained stable.
- Tight supplies for 2020/21
The balance in global oilseeds markets remains tight going into the 2020/21 campaign. In Europe, analyst Stratégie Grains released a report earlier this week estimating an EU rapeseed production of 17.85 million tonnes – slightly lower than its previous forecast. This represents a 5.7% increase on last year's crop size which marked a 13-year low. With carry in stocks falling, it is likely to leave the EU with higher demand for imports in 2020/21. This figure could be as high as 6.5 million tonnes, with Black Sea and Australian crops looking to be crucial in the efforts to fill this gap.
- Price rises slow for old crop feed beans
Old crop feed bean price rises slowed down in the past week as export buyers finally got themselves covered. Imported peas are now widely being used by UK plants that require a pulse in their rations. The rise in feed bean values has also depressed the premium of human consumption beans and, whilst there are very few samples available with less than 5% bruchid, this premium is currently below £20/t.
- New crop bean values firm
The recent Agriculture and Horticulture Development Board (AHDB) 'Early Bird' survey demonstrated an intention to plant 27% more spring sown pulses this spring but, with uncertain drilling conditions and later planted beans tending to be smaller seed size, yields are far from assured. Uncertainty also exists over the area of winter beans drilled but it is likely to be 20-30% lower than last year. New crop bean values have firmed over the past week with values approaching £200/t in some areas. Now is the time to start marketing new crop beans before the new crop drilling starts.
It has been a strange week in the market which has seen the negative impact of currency changes counteracted by an improvement in weather conditions. Gran urea markets continue to firm due to a combination of increased demand and supply issues in China. Spreaders are now out and running in many parts of the UK but drills are only beginning to start going. Demand in the UK is increasing fast as crops start moving. Prices have probably bottomed and supply will now be the issue. Hauliers have been very quiet for the last six months due to lack of farmer demand and some have sought alternative work which has left them with much lower capacity. This could lead to tighter than usual logistics in a busier, more condensed spring. This provides another reason to get products booked and delivered in good time.
- Ps and Ks
Prices for TSP/MOP and various other mixes of P and K are at 3-4 year lows. If in doubt, buy a full load and 'over year' any remaining stock.
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