Wheat futures rallied over the festive break with many regaining the losses they had posted earlier in December. The primary driver for this was the extreme cold that hit a significant part of the US winter wheat belt with freezing temperatures as far south as Texas raising concerns for winter kill. US winter wheat was already in poor shape with over 70% of the area drilled in drought conditions heading into the winter.
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WHEAT
- Markets fall heavily at start of new year
Wheat futures rallied over the festive break with many regaining the losses they had posted earlier in December. The primary driver for this was the extreme cold that hit a significant part of the US winter wheat belt with freezing temperatures as far south as Texas raising concerns for winter kill. US winter wheat was already in poor shape with over 70% of the area drilled in drought conditions heading into the winter.
However, world wheat markets have not enjoyed a happy new year so far in 2023 with most markets dropping below the levels that were trading prior to the start of the Russia-Ukraine conflict in February 2022.
The results of the latest United States Department of Agriculture (USDA) US winter wheat crop ratings were mixed but, overall, better than expected. Russia continues to dominate the export market for wheat following its record 102-million-tonne crop. Meanwhile, the export corridor in the Black Sea remains open for shipping from Ukraine.
Australian wheat production estimates are now as high as 42 million tonnes. If realised, this would be a significant gain on the 36 million tonnes it produced last year, which is currently its highest production record. India may similarly be set to achieve a record crop of up to 112 million tonnes as its wheat planted area is up 1% on the year and favourable weather is predicted. The high production estimates for Australia and India saw speculative selling take US wheat futures to their lowest since October 2021 earlier this week.
- USDA offers the market support
The USDA published its January World Agricultural Supply and Demand Estimates (WASDE) report late on Thursday which, coupled with a bullish US stocks report on 1st December, triggered short covering and helped lift futures prices from their new year lows.
In the stocks report, US wheat and corn stocks were notably lower than both trade estimates and last year's figures. Wheat came in at 1.28 million bushels, dropping from last year's 1.38 million bushels and the trade estimate of 1.34 million bushels. Figures for corn were also lower than anticipated, coming in at 10.81 million bushels; lower than the trade estimate of 11.15 million bushels and last year's total of 11.64 million bushels.
However, 2023 US winter wheat prospects are well up on the year according to seeding estimates from the USDA which reports that 36.95 million acres have been planted; up from 33.27 million acres last year. Trade guesses were much lower at 34.49 million acres. However, for the US, it would be reasonable to question how many of these additional acres will prove fit for harvest given the drought and the December spell of extreme cold and resulting winter kill.
The WASDE report saw minimal changes to world wheat estimates with the only production increases being for the EU and Ukraine at 400,000 tonnes and 500,000 tonnes respectively. Global production is now seen at 781.31 million tonnes.
There were also minimal changes to the demand estimate; this figure is up 200,000 tonnes to a new total of 789.74 million tonnes. An increase in carry in stocks from last year sees world wheat end stocks up just one million tonnes to 268.39 million tonnes. This is 8.5 million tonnes down on the year.
There was no change to the Australian production number from the Australian Bureau of Agricultural and Resource Economics (ABARES) whose estimate remains at 36.6 million tonnes, while private estimates are higher at 42 million tonnes.
The corn balance sheet saw a few more changes but the severe cuts highlighted yesterday by the Rosario Grains Exchange for Argentina came too late for the USDA which cut its estimate by three million tonnes to a new total of 52 million tonnes. The Rosario Grain Exchange dropped its estimate to 37 million tonnes due to ongoing severe drought.
The US harvested area dropped 1.6 million acres to 79.2 million acres while the planted area remains unchanged at 88.6 million acres, which indicates some significant lost acreage. Yields are up 1.3 bushels per acre to an average 173.6b/acre leaving the overall US corn crop down 5.1 million tonnes and world production down six million tonnes to a new total of 1.156 billion tonnes. China, however, has seen a production increase of three million tonnes, taking its new production estimate to a total of 277.2 million tonnes.
Conveniently, global demand is down five million tonnes to a new total of 1.1655 billion tonnes, which leaves end stocks just two million tonnes lower at 296.42 million tonnes. This is 9.5 million tonnes down on the year. Demand levels are 36 million tonnes down on the year.
Chicago Board of Trade (CBOT) corn futures rallied 14c/t following the report and there will need to be some further notable production cuts in future reports to support prices.
BARLEY
- Old crop malting barley market very quiet
As is usually the case this time of year, most maltsters have a very high cover of barley against sales of malt they can make (around 90%). Any further demand they have will be dependent on sales of beer and spirits running at projected levels or better. If sales are less than the currently projected levels then they will have even more cover but, in the current economic climate, it may be some time before demand can be known. As a result, prices to growers have slipped again this week and some merchants will need to part with stock in the coming months.
In the port catchment areas of the south coast of England, premiums over feed have shrunk to £30/t and are likely to continue to fall.
- Feed barley lacking buyers
Demand from UK feed compounders for barley is very low. Barley's discount to wheat has shrunk as wheat has come under pressure and is no longer such an attractive raw material in a livestock diet. Fortunately, a weaker Sterling has meant that a couple of shipments have been sold into the Spanish market this week.
The likelihood of seeing any upside in prices today is low and would be mainly reliant on problems arising with the Black Sea export corridor agreement or a drought in Brazil impacting the second grain maize crop that's about to be planted. Without these factors we are heading towards new crop prices, as EU livestock numbers will not pick up until the summer at the earliest.
- UK barley exports slow
It is believed that only 650,000 tonnes of barley exports will have left the country by the end of December 2022. This leaves 950,000 tonnes to ship in the next six months, which is unlikely to be realised if weather patterns follow average trends. With feed barley no longer at an attractive discount to wheat and the EU drinks industry well covered, it may be difficult to generate fresh export demand.
OILSEED RAPE
- Ex-farm values reach new lows for the crop year
After a promising rally pre-Christmas, rapeseed suffered from a new year hangover with ex-farm values touching lows for the crop year at the time of writing. Oilseed rape had experienced a period of gains on the back of news that China would relax its Covid-19 restrictions. This increased the demand potential for both vegetable oil and meal with energy markets following the same pattern. The lack of improvement in South American weather for its soybean crop plantings and development also resulted in strong gains in the oilseeds market.
There are subsequent concerns over the speed of the global economic recovery, which forecasters now predict will remain slower and for longer. This reversed gains in crude oil and other energy sectors. On top of this, there was a glimmer of improvement in the prospects for Argentina's soybean plantings and early development following rains early in January. Further rain is still required in these growing areas over the coming weeks to allow the crops continued development.
In addition to these global factors, we continue to see a heavy supply of world rapeseed in an environment where demand remains less certain. Closer to home, ex-farm rapeseed prices in England experienced a brief rally to £500/t in some places. However, prices have now slipped back.
PULSES
- Bean values follow wheat
Pressure on old crop bean values continues due to lack of export demand and buyers not taking delivery of in month shipments. In broad terms, bean values are now following the movement in the wheat market although there isn't a direct relationship between the two. Human consumption buyers are also absent and, with Ramadan starting at the end of March, there is little time left to make new sales and get them shipped to Egypt in good time.
On a positive note, the increasing value of other mid- and high-protein feed ingredients is starting to make feed beans look better value in compound feeds.
FERTILISER
- Urea/AN
There is now a domestic ammonium nitrate (AN) offer for the UK, which appears reflective of current and potentially variable production costs. The offer of March delivery gives confidence that the producers are focusing on the existing order book before new tonnes are released.
Urea has maintained an average price across the UK with some small regional variations. We advise you confirm the source of urea where possible and its quality before purchase. Although a cheaper source of nitrogen in terms of cost per kilogram, urea is at risk of significant nitrogen loss via volatilisation and growers need to take note around holding stock for next season, as they will have to follow legislation around urea application timings.
With changes in the cost of nitrogen and in wheat futures, it is important to double check your total nitrogen rates and breakeven ratio (BER). Please speak to your Frontier contact for support on calculating your BER and making your final nitrogen rate decisions.
- Liquid/UAN
UAN continues to track AN-equivalent values rather than urea-equivalent values. With new tank installations ongoing, it is important to ensure site preparation is completed and that orders are accurate to allow for an efficient entry into liquid use. The same order accuracy applies to existing liquid users as we exit winter with confirmation of spring liquid requirement.
- PK/NPKs
Appetite for PKs has increased over the last week as growers' confidence increases on crop investment. Levels remain unchanged on PKs, but NPKs are showing great value and consistent product quality for a true granular compound.
Importers are keeping PK and NPK stocks tight due to current market volatility, so be sure to make your decision as soon as possible to ensure you can purchase product. Please speak to your Frontier contact about product options for your region.
Get in touch
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