- Markets rally from 2021 lows
European wheat markets dropped to their lowest so far this year following the Easter break. A lack of fresh demand and generally favourable Northern Hemisphere winter wheat conditions were highlighted as the reasons for the continued downward trend which has been in place since early March. However, US wheat futures rallied sharply on Thursday, taking Paris and London wheat futures higher too. Increasing concerns for dry soil conditions ahead of spring wheat drilling in the north of the US and Canada has been the catalyst for change in market sentiment. Extreme drought has expanded across key spring wheat producing states North Dakota, South Dakota and Montana where last year there were no such issues. The United States Department of Agriculture (USDA) estimates that so far just 2% of US spring wheat has been planted. It is too early to be too concerned but, clearly, notable rainfall will be essential in the coming weeks.
Meanwhile, the first national US winter wheat conditions were much as expected with 53% rated 'good' to 'excellent', although this is behind this time last year when 62% of winter wheat crops achieved this rating. Dry weather is also a concern in France where temperatures dropped to record lows for the month of April. Winter wheat crop ratings remain unchanged on the week with 87% rated 'good' to 'excellent', which is ahead of the 62% that received this rating this time last year.
- Higher corn markets ahead of the USDA WASDE report
Increasing Chinese demand for US corn coupled with concerns for South American corn production has kept US corn futures close to their contract highs; the highest prices seen since 2013. This afternoon, Friday 9th April, the USDA will publish its April World Agricultural Supply and Demand Estimates (WASDE) report. A bullish corn report is expected. Despite adverse weather conditions impacting on production potential, the USDA left its production estimates for Argentina and Brazil unchanged in March.
This week, the USDA Foreign Agricultural Service estimated Brazilian corn production would reach 105 million tonnes, which is four million tonnes less than the estimate of 109 million tonnes that was given in the USDA's March WASDE report. For Argentina, the latest estimate from the Buenos Aires Grain Exchange is 45 million tonnes, which compares to the estimate of 57.3 million tonnes the USDA gave in March. This suggests these crop reductions would need to be reflected in the April WASDE report.
US domestic demand for ethanol production is continuing to increase and is now above the five-year average. Meanwhile, rumours of further Chinese old crop US corn buying encouraged the speculative funds to further extend their record long corn futures positions.
- Russia number one 2021 wheat exporter?
Egypt held its first tender to purchase 2021 wheat earlier this week. Egypt's state grain buyer, the General Authority for Supply Commodities (GASC), confirmed it had bought 345,000 tonnes of new crop wheat for execution on the 1st to 10th August.
Russia dominated the sales made, accounting for five of the six cargos sold, with the last cargo originating from Ukraine. The average sales values were just below $233/t excluding freight costs, which highlights a significant discount to the price peaks this season when Black Sea export prices exceeded $300/t. What isn't clear is how the export tax mechanism might impact on net prices and ultimately what the Russian farmers might expect to get paid. Recent production estimates for 2021 put Russian wheat production just short of 80 million tonnes, which would be the country's third largest crop on record and leave a surplus sufficient enough to enable Russia to continue as the world's leading wheat exporter - politics and taxes allowing.
- Strong domestic demand
The old crop feed barley market remains very regional. The UK is not competitive on exports although supplies local to the ports have been well sold, particularly in the first half of the season when the threat of a no deal Brexit was a key market driver. Domestic demand remains strong given barley's discount to wheat and corn, but this demand is likely to slow as we move further into the spring.
- Spring drilling almost complete in the UK
Spring drilling is now all but completed across most parts of the UK. Crops were generally drilled in good conditions and ahead of schedule. The Agriculture and Horticulture Development Board (AHDB) also announced its first update on winter barley conditions with 60% of the crop rated 'good' to 'excellent', a 15% increase compared with this time last year. Crop 2021 will see winter barley represent a more traditional component of the barley area in the 2021-22 season compared with crop 2020. This season it will represent around one-third of the total barley area drilled. New crop barley's discount to wheat has narrowed slightly this week to £15-16/t. However, domestic buyers remain absent from the market. The UK has seen export interest for the harvest period from southern Europe with a weaker sterling and euro aiding UK port values across the week.
So far during April we have seen a marked difference in the price performance between old and new crop rapeseed. The benchmark Liverpool crush destination has seen values drop by £10/t for deliveries through to July, but the November delivery position has gone up by £7/t over the same period. European old crop positions are getting largely sorted at this late stage of the season and although the gap between the two crop years is closing, the 2020 crop is still trading at around a £20/t premium to new crop. On old crop there is also less to focus on the wider market. The preoccupation with South American weather has almost passed as Brazil is close to completing its soybean harvest and any rain in Argentina is really arriving too late now to benefit crops. The Chinese have had a reduced market presence as the country grapples with the issue of Swine Fever. China is also attempting to reduce inclusion rates for soybean meal in its pig rations. Add in the upward revision in US soybean stocks as seen in last week's USDA report and it's not difficult to see why the nearby positions are all looking softer.
- Debate continues on US planting intentions
There is no doubt that new crop markets have benefited from the surprisingly low soybean plantings intentions revealed in last month's US Stocks and Plantings report from the USDA. In the coming weeks, traders will be watching to see if actual plantings will vary from farmers' early March intentions and weather is going to be a key factor in this equation. Currently, the forecasted weather in the US looks favourable for a good and early spring planting campaign, but traditionally this has favoured corn over beans. In recent years, the total amount of land available to grains and oilseeds in the US has declined. Some of this land has been lost to urbanisation or government support schemes but it remains to be seen whether high prices will win back some acres from the cattle farmers. The final piece in the jigsaw will be yield. It's clearly too early to predict weather patterns through to harvest time, but what we do know is that farmers will invest more in their crops in the form of fertiliser and pesticides when prices are high.
- Australia set to be a key supplier in 2021/22
Another factor to watch in the coming months, and one that will particularly affect European markets, will be the prospects for the Australian canola harvest scheduled for late 2021. Due to a combination of low stocks and known plantings the market is already working on the assumption that domestic availability and export surpluses in Canada and Ukraine will all reduced in 2021/22. This puts considerable reliance on Australia to at least match its 2020/21 performance, with the EU currently on course to take 2.5 million tonnes, and possibly even more. However, due to its climate, Australia is not a reliable producer of canola. This year's crop is estimated at 4.4 million tonnes, but last year the total volume produced was only 2.3 million tonnes when exports were less than half of this year's projected figure. Overall, there are plenty of factors to watch on the new crop market and it's not surprising that these forward positions are not being pulled lower by nearby price weakness considering all at play.
- Old crop pulse values continue to slide
Old crop feed bean values have continued to slide over the last week with demand remaining limited. Small amounts of interest have appeared but with relatively large balances still left on farm, this has not resulted in any upside in the ex-farm price.
Virtually all pea grade markets are seeing a distinct lack of demand and with current plantings in fair condition, prices continue to fall. The only exception to this is the marrowfat market which remains firm in comparison. Most marrowfat peas are grown on contract and it is unlikely there are many free market samples on farm left to sell.
- New crop pulses weaker in line with wheat
In a continuation from last week's report, feed bean values for new crop have had a slight price decline due to the comparative weakness in the wheat market. Until we see further progress with winter and spring bean plantings, new crop bean prices will be mainly subject to movements in the wheat market as the next comparative feed stuff.
Global granular urea markets have weakened in the past week due to a slower demand in the Far East and wider global markets. We have seen values fall $25/t since the RCF Indian tender two weeks ago and Egyptian offers are currently around $365/t free on board. There is currently very little spot demand for urea in the UK and it is unlikely we will see any shipments into the country in the short term.
European ammonium nitrate and calcium ammonium nitrate values remain firm and spot UK demand has been good for domestic ammonium nitrate throughout March and early April as farmers complete their purchases for the remainder of the season. Growers should also take into account any nitrogen top-ups required due to nutrient losses over the winter period.
The phosphate market has continued to firm this week and this has filtered through to UK offers on farm. There is still a possibility of further rises to come due to strong South American and North American demand. Most growers will have already purchased their phosphate requirements but blended and compounded products containing higher phosphate levels, such as 16.16.16 and 14.14.21 will reflect higher values as a result throughout the remainder of the spring market.
Potash remains stable in value with only a moderate price increase this week. However, it is worth noting that stocks are low in blenders' stores.
Please discuss any outstanding spring purchases that you might have with your local Frontier contact.
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