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- Lower wheat prices
Wheat markets made an uncertain start to 2022 but after some early small gains, trade futures prices posted some notable losses. This week, Chicago Board of Trade (CBOT) wheat prices fell to their lowest since mid-October and were followed by the Paris and London futures markets. Strong price support had been expected to continue to come from the world's major wheat importers – including Egypt, China and Algeria - as it had done throughout December. However, such support was found lacking this week.
This lack of buying was highlighted by very poor weekly US wheat sales data which showed just 48,600 tonnes sold for the current season; traders had been expecting between 150,000-400,000 tonnes to be sold. New crop sales were just 2,500 tonnes. Overall, just over two-thirds of the US wheat export estimate has been sold compared to the 75% average for this period.
Additional price pressure is coming from record wheat crops within the Southern Hemisphere. With the Argentine wheat harvest nearing completion this month, the Buenos Aires Grain Exchange (BAGE) increased its production estimates from 21.5 to 21.8 million tonnes. Argentina is the cheapest world wheat available and shippers are keen to make sales.
- South American corn crop concerns
Argentina is the world's second-largest corn exporter and early production estimates for its 2021-22 crop have been as high as 57 million tonnes which, if realised, would be a new record. However, since mid-December, dry weather has prevailed across most regions and temperatures are currently rising. Over the next few days a heatwave with 40°c temperatures is expected, which could prove damaging for young pollinating plants. Heavy rain is expected by the end of next week - which will provide relief - but the question is whether or not crops will have suffered permanent heat damage before the rains arrive.
- Possible troubles for US winter wheat
Weekly crop ratings for the US do not begin until April, but a monthly update is published by the United States Department of Agriculture (USDA) for key producing states. This week, the USDA published its latest updates and the condition of winter wheat for the primary producers Kansas and Oklahoma was reported to be in sharp decline. 33% of Kansas wheat is seen in good/excellent condition, down from 62% in late November. In Oklahoma, just 20% is rated good/ excellent, which compares to 48% in late November. Roughly half of Kansas and 90% of Oklahoma are in moderate drought according to the latest USDA drought monitor and crops suffered badly from a spell of high winds in December. Despite these poor crop ratings and US wheat futures, both old and new crop continued to fall. Without beneficial weather conditions arriving in 2022, US wheat production could be notably down on 2021, which was the lowest crop for 19 years.
- Logistical issues limiting trade
Old crop feed barley values have fallen over the week largely on the back of weaker global wheat markets. Farmer selling has been slow as many return from the festive break with markets down nearly £10-15/t from the season highs seen late November into early December. The UK is seeing fresh demand both domestically and on the export market, but logistical limitations mean that trade has been limited. East to west trade flows domestically remain a challenge whilst shipping costs remain high, especially with crude oil rising by around $10/barrel from pre-Christmas levels.
- New crop feed barley values down
New crop feed barley values have also fallen although farmer selling has slowed given physical prices are £15-20/t lower than season highs. As feed bases have fallen, malting premiums have widened to around £70/t in the east and £60/t in the south depending on location. Frontier has a range of contracting options available for new crop. Please speak to your local farm trader for further details.
- Old and new crop markets firm
We are into a new year for oilseeds but it appears that markets are set to behave in much the same way as they did in 2021. It is usual for not much to happen on markets over the festive period but since the last Frontrunner report, Paris rapeseed futures have breached €800/t and old crop domestic prices have surged by over £25/t. What is even more remarkable is the firmness in new crop markets. Over the same period, 2022 crop prices have appreciated by £30/t with £450/t ex farm available in many areas. Over the past few months, new crop prices have lagged behind those for the current marketing campaign on the basis of a better supply situation in 2022/23 with higher plantings following higher prices and the expectation of average global weather. However, market dynamics are changing.
- Poor weather in the Southern Hemisphere
For Northern Hemisphere crops, there is still hope for at least average growing conditions, but it is becoming clear that weather in the Southern Hemisphere is rapidly becoming detrimental for crops that are getting close to harvest. Drought conditions continue to worsen in southern Brazil, Argentina and Paraguay with heat building and little confidence in forecasts that are predicting some relief next week. Some key areas are already talking about 50% crop output reductions. Falling crop numbers will inevitably lead to higher US soybean exports at a time when US crush demand is surging - partly on the back of growing renewable energy demand. When taking into account the fact that Chinese buying is also way off pace, making China the big short in the market, it's not difficult to see why markets have surged higher. A key moment will come next week when the USDA publishes its predictions for domestic bean stocks in its World Agricultural Supply and Demand Estimates (WASDE) report.
- Europe short of rapeseed
Over the past 12 months, soybean and rapeseed markets haven't always moved in unison. Currently, they seem to be aligned, but this is highly coincidental and due to external factors currently at play. There is simply not enough rapeseed in Europe. Higher prices would normally choke off demand and attract new supply but this isn't happening fast enough. Demand remains inelastic due to the unique characteristics of rapeseed oil in the food industry and the inability of EU crushers to switch into palm and soy oil for biodiesel production. As for more imports, it's difficult to see where these are going to come from. Canadian supplies are pretty much cleaned out and it's thought that the bumper Australian crop has already been fully allocated. It feels as though we are heading into uncharted waters as the 2022 European rapeseed market heads forward.
- Bean prices follow wheat values downwards
The fall in wheat values has led to the fall in bean prices for both feed and human consumption. New crop Australian beans have finally started to be shipped to Egypt and with a second consecutive bumper crop likely, no further upside in values is expected. Currently, buyers have withdrawn from the market as they wait to assess the quality of new crop Australian beans but they are likely to return at lower levels sometime over the next two to three weeks.
- Feed beans losing value
Feed beans have also lost value as the large volume of unsold farm tonnages weighs heavily on the market. Without further export demand, values are likely to fall further over the next few months.
Gas market volatility was once again in the headlines over the festive period, with gas on the UK spot market rallying to over £4.50/therm on the 21st of December, then dropping off with mild weather to £1.70/therm as we moved into 2022. Colder conditions soon pushed it back up to current levels, which stand today at £2.20-2.40/therm. This is still much higher than the 52p/therm gas values of a year ago.
A reduction in nitrogen supply is still a concern not only in the UK but throughout Europe. The weather will play a huge part in spring 2022 nitrogen supply, along with haulage capacity shortages and ongoing difficulties caused by Covid-19. CF Fertilisers remains out of the market until next week when it's expected to continue offering ammonium nitrate from one of its two production sites.
The Department of Fertilisers for India concluded another round of purchasing over the Christmas break with 1.2 million tonnes of granular urea purchased for January 2022 shipment. This has again cleared some surplus urea from the system. Any further shipments of granular urea to the UK will be limited to smaller vessels depending on freight rates.
UK UAN suppliers are tentatively offering values based around regional grade availability in the early stages of 2022. Limited volumes will be available for the remainder of the spring campaign with suppliers reluctant to commit to any new large shipments until a clear picture emerges both in terms of required volumes and market direction. By the time either becomes clear, the season will be well underway and some suppliers may be seen pulling terms altogether.
Logistics will play a key part in the execution of spring UAN business with trucks in the agricultural sector highly sought after. Planning offtakes and deliveries to farm will be key to a successful season.
Demand for MOP/TSP and blended versions of these two raw materials has been slow all season due to the rising market, with many farmers looking to manures and digestate to fulfil their requirements. Demand is expected to pick up towards spring. UK stocks are currently lower than average due to limited offers and increased freight costs.
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