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- US corn leads wheat lower
Wheat markets have stepped lower this week again, strongly influenced by the fortunes for US corn.Chicago Board of Trade (CBOT) markets were closed on Monday for Independence Day but most of last week's sharp price rally was lost on Tuesday following the long US weekend. CBOT corn opened 40 cents down but losses over the week amounted to 10% as US weather changed to cooler and wetter conditions. This was deemed ideal for developing corn plants as they head towards their pollination period.
Speculative funds have been heavy sellers, reducing their long positions and taking corn futures 10% below last Friday's close through the week. It was not all negative news for corn, with analysts making further cuts to the Brazilian corn crop. Companhia Nacional de Abastecimento (Conab) dropped its estimate by three million tonnes from its previous figure to a new estimate of 93.385 million tonnes. It is anticipated that the United States Department of Agriculture (USDA) will publish a similar number on Monday in its July World Agricultural Supply and Demand Estimate (WASDE) report, down from its previous figure of 98.5 million tonnes.
Wheat markets followed corn lower to a degree, although support came from a continued deterioration of US spring wheat as the northern US states missed any notable rain. Weekly US spring wheat crop ratings fell four points on the week to just 16% good/excellent, which compares very badly with 70% last year. Canadian wheat crops also continue to suffer from a lack of rain. European wheat futures fell to their lowest since early April.
- French wheat harvest off to a slow start
The wheat harvest is now underway in France. Early cut crops were reported to have above average yields but a lower-than-average specific weight of 76kg/hl and higher protein than average at 13.5-14%. Quality concerns continue as unwelcome rain persists. At this stage, weekly crop ratings remain unchanged at 79% good/excellent, which is well ahead of the 55% at this time last year. FranceAgriMer stated that only 1% of the wheat harvest has been undertaken, which is significantly behind compared to last year when 10% had been harvested by this time.
- UK 2021 wheat area higher
The Agriculture and Horticulture Development Board (AHDB) published its UK wheat planting and variety survey which estimates the UK wheat area for the 2021 harvest will be 1.742 million hectares, up 26% on the previous year. This is generally in line with most trade guesses and not unexpected given the improved drilling conditions. The biggest year-on-year jump in wheat planting is seen in the East Midlands, where 2019 drilling conditions were some of the most challenging in the country. The wheat area in this location is now up 47% on last year. However, there were only 671 survey respondents, which means the results are far from an exact science although they offer a fair indication of the overall trend. Of the wheat drilled, the survey sees 29% of the area as Group 1 and 12% of the area as Group 2. If this is an accurate reflection, it points towards a significant oversupply of bread-making wheat for our domestic market and another challenging year for milling wheat growers looking for premiums. C2 seed sales suggest there is less Group 1 in the ground, with less than 22% of sales being a Group 1 variety. If the current UK weather pattern persists and quality issues develop, the milling market could prove to be far from dull.
In the meantime, continued wet weather is pushing back the start of the UK wheat harvest which is giving further premium opportunities for any remaining old crop supplies. With a price difference between old and new crop of potentially £40/t, any remaining old crop should be sold before the sun shines and the opportunity is lost.
- Old crop barley
UK old crop values have rallied on the week with this year's harvest 10-14 days later than last year's early harvest. The premium for old crop versus new crop could be as wide as £50/t in some regions and, as a result, old crop stocks have been run down given the significant drop to new crop values.
- Interest from Europe
The UK has seen an increased interest in new crop exports for the harvest period, largely from southern Europe. Weaker currency influenced buyers and sellers to move closer, but UK farmers are waiting for barley to be cut before selling further.
- UK 2021 barley area
The AHDB published its latest Spring Planting and Variety Survey earlier this week. As expected, the UK spring barley area is down 28% from 2020 at 769,000ha, whilst the winter barley area in this location has recovered 15% from 2020 at 350,000ha. The market will now closely monitor harvest to get a gauge on yields and crop production levels for 2021.
- Short-lived boost from USDA planting report
Any excitement generated by the lower-than-expected US soybean planting figures, revealed in last Wednesday's USDA report, proved to be short-lived. Domestic rapeseed prices jumped by £20/t but have now returned to pre-report levels as some easing in North American weather conditions has given traders more confidence in terms of yield expectations. Rain has been falling this week in many of the driest areas of the US and Canada, leading to a sharp sell-off in oilseeds markets around the world. Australia is also seeing a beneficial pattern of rain showers but markets have now steadied due to poorer-than-expected bean crop ratings in the US and reports of Chinese farmers switching out soybeans for more corn plantings. There is short term volatility as conflicting news items move prices around. Next Monday's July WASDE report from the USDA is the next marker in the calendar for traders.
- Europe heavily dependent on imports
What has become clear in recent weeks is how closely European rapeseed prices are tracking movements in Canadian canola futures markets. Europe is predicted to have a similar supply position to 2020/2021, given a slightly bigger crop but lower opening stocks. Australia is currently benefiting from higher plantings and reasonable weather, leading to forecasts of an unchanged crop size there. Ukraine is heading towards its smallest crop in four years, due to a 13% decline in plantings caused by exceptionally dry conditions last autumn. In terms of how the European rapeseed deficit in 2021/2022 is going to be covered, current reports position Canada as a key part of the solution.
- Canadian production is now a key concern
With 800,000 extra hectares of oilseeds planted in Canada, the prospects for a bumper export programme were looking good before the recent drought that ravaged crops. In June 2020, 72% of Saskatchewan crops were rated good to excellent. At the start of June this year 64% of its crops were in this category. However, by the end of the month this figure had plummeted to only 38%. This is a rapidly developing situation which is leading some traders to predict a decline in Canadian canola supplies of around 1.5 million tonnes in 2021/22. Oil World is currently predicting a significant shortfall in global rapeseed production for next season, which requires a high degree of rationing of world import demand, 'primarily in price sensitive markets such as Pakistan, Bangladesh and Mexico'. Prices will need to remain high to ensure supplies into markets such as Europe where demand is more difficult to squeeze out.
Urea markets remain firm mainly due to the cost of production, with energy prices continuing to climb and freight costs also increasing. Gas and ammonia prices are trading at five-year highs and there is no sign of any let up on these as we look towards Q4. No new urea has been traded into the UK on the back of firm global prices. CF Fertilisers and Yara have reflected the rise in production costs increasing by a further £10/t on top of the recent September terms, with no offers for October onwards at this stage.
UAN pricing will also follow solid nitrogen in an upwards trend over the coming days.
Not only have we seen price rises in the nitrogen market, but also on potash and phosphate. The demand for phosphates globally is high. However, UK prices still do not reflect the true replacement values. The potash prices are also being driven by demand, as we see prices continue to strengthen.
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