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- Indian wheat heats market
The primary price driver for the world's wheat markets continues to be the impact on supply chains resulting from the conflict in Ukraine. Traders have been assessing how the world's major wheat importers can source alternative wheat supplies and had found that India was able to fulfil some of the shortfall. India had been expecting to harvest a record wheat crop of up to 111.3 million tonnes, which would be its fifth consecutive year of record production. Furthermore, its wheat exports had the potential to reach eight million tonnes. Egypt, the world's largest wheat importer, recently approved India as a wheat supplier for its needs.
However, severe heat during the second half of March has proven damaging for yields and this week Indian officials cut the country's wheat production estimate to 105 million tonnes. Subsequent rumours that India may restrict wheat exports triggered a sharp price rally for futures markets. An official from the Indian Ministry of Consumer Affairs, Food and Public Distribution released a statement to deny that any restrictions would be put in place and confirmed that India expected to export up to eight million tonnes of wheat; however, this did little to calm markets.
Indian wheat production estimates from private analysts have fallen as low as 92 million tonnes which, if realised, would leave India with no exportable surplus.
- US winter wheat condition worsens
Recent rain led the trade to expect modest improvements in the US winter wheat crop condition; however, conditions have not improved. This week's updates reported that 27% of the national crop has received a rating of 'good/excellent', which is unchanged on the week. However, the area rated 'poor/very poor' increased by four points to a new total of 43%. This now sees this season's US winter wheat crop having its lowest crop condition rating since 1989.
Spring wheat and corn planting are behind schedule due to cold, excessive rain and flooding. Spring wheat has reached 19% planted, which is well below 46% at this time last year and the 28% average. Corn is currently only 14% planted in comparison to 42% this time last year and the 33% average. It was reported that the key state Minnesota had not yet begun drilling.
Dryness is a concern in parts of the EU; French winter wheat crop ratings slipped two points on the week to 89% rated 'good/excellent'. This is still well ahead of this time last year when 79% of the crop achieved this rating.
- Changes in production potential for Ukraine
Analyst group APK-Inform highlighted grain storage challenges for Ukraine as a result of the conflict and exports that have subsequently been stalled. It sees Ukraine's 2021-22 grain exports at 45.5mt from its record harvest total of 86mt and it estimates that stocks could reach an all-time high of 21.3mt. Official data showed Ukraine had exported 763,000 tonnes of grain in the first 29 days of April this year compared to 2.8mt in April of 2021. The country's railway network has been key in achieving this.
The 2022 grains and oilseeds harvest could reach 55.9mt which, if realised, would create a significant storage issue and a capacity shortfall of over 16 million tonnes.
According to the Ukraine traders' union (UGA), Ukraine's farmers have managed to plant 6.1 million hectares of spring crops including 186,000 tonnes of spring wheat from a planned spring grain area of 11.45 million hectares. This will be 3.5-4 million hectares less than in 2021.
- Barley at narrow discount to wheat
The spread between old and new crop barley values narrowed once again this week. Old crop barley values have traded within a narrow £2-3/t range on the week with a low volume of farmer selling into domestic demand which has been compounder-led. As it has throughout the season, barley is holding a relatively narrow discount to wheat, especially in May and June. However, with July wheat trading at a premium, old crop barley for July has traded above the traditional £1-2/t over June levels.
- Firming new crop values
New crop values firmed significantly over the week and have largely followed global wheat markets, which saw the London November 2022 contract trading £17.30/t higher at its close on Thursday from Tuesday's open. New crop farmer selling is also slow despite prices being at season highs. With large parts of the UK spring barley crop yet to receive significant rainfall since planting, forward marketing is being approached with caution.
- Oilseeds markets take a hit with biofuel mandates looming
Early this week we saw a reversal in oilseeds markets, which have been on a strong upwards run since the Russia-Ukraine conflict began in late February. This downturn in the market was partly due to rhetoric around certain EU member states imposing changes to biofuel mandates which would lower the minimum volume of biofuels that need to be included in fuel blends, therefore significantly reducing demand for rapeseed. This information comes in the same week that the EU vowed to end Russian oil imports to the EU. It could be speculated that this shortfall in oil supply would necessitate the use of alternative plant-based solutions and therefore hinder a biofuels reduction mandate being enforced.
On Monday, there was large fund selling on US soybeans, which can be seen as profit taking and a reaction to increased uncertainty in oilseeds markets. This caused a big drop in US soybean markets and, in turn, assisted with a €46/t drop in Matif rapeseed futures.
- World weather update
Some of the key rapeseed producing regions globally are experiencing less-than-ideal planting and growing conditions. Canadian weather remains of some concern, with drought in the west and elevated moisture levels in the east making for a tough planting season. Europe and the Black Sea would benefit from additional moisture in the coming weeks to aid crop development. Australia is standing out with positive weather conditions and good, moist seedbeds for planting.
Yara Europe has released 'New Season' fertiliser offers which give a strong indication of levels likely to be offered into the UK in the coming weeks, although these cannot be guaranteed. This offer in Europe is for May delivery of 33.5AN and is of limited tonnage at around €775/t. Although there are large amounts of speculation, there are no offers at time of writing for new season ammonium nitrate into the UK. However, the gradual softening of global urea prices means we will start to see new season urea offers entering the UK market from a limited number of suppliers.
Given the strong forward grain prices for both harvest 2022 and 2023, it is important to discuss the breakeven ratio between the cost per kilogram of nitrogen and the cost per kilogram of wheat, as these higher grain prices certainly support higher nitrogen prices. Speak to your Frontier contact about our breakeven ratio calculator and nitrogen and sulphur fertiliser solutions to fit your cropping strategy.
Liquid offers remain for the current season; however, pricing continues on a price-on-application basis. Given the current dry, warm conditions it would be sensible to include Limus® Clear, the BASF urease inhibitor, in all UAN applications to reduce ammonia losses so more nitrogen is available to your crops. Please speak to your Frontier contact for further advice and information.
Some importers are now into replacement TSP, resulting in significant price increases this week. TSP prices have jumped from £755/t to £860/t. DAP prices remains unchanged but still in short supply and volume is likely being retained by importers as a high-value blending material. We have yet to see MOP changes based on replacement cost but know with relative certainty that when importers are through current stocks we will see price increases of £50-100/t.
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