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Benchmark global wheat prices lifted 6% on Monday in a knee-jerk reaction to news from the weekend that Putin was withdrawing from the safe Black Sea corridor agreement. Consequently, insurers refused to grant fresh cover for vessels that were returning to Ukraine which caused concern for the 22 boats anchored in Ukrainian ports waiting to be loaded - a further 101 are awaiting inspection. London futures rallied from £12 to a high of £293, which ignited UK farmers to market large volumes at prices not seen for a month.
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WHEAT
- Russia withdraws and re-enters grain corridor agreement
Benchmark global wheat prices lifted 6% on Monday in a knee-jerk reaction to news from the weekend that Putin was withdrawing from the safe Black Sea corridor agreement. Consequently, insurers refused to grant fresh cover for vessels that were returning to Ukraine which caused concern for the 22 boats anchored in Ukrainian ports waiting to be loaded - a further 101 are awaiting inspection. London futures rallied from £12 to a high of £293, which ignited UK farmers to market large volumes at prices not seen for a month.
That was until Wednesday's news hit the market. Mid-week reports said that Putin's conditions had been met and since Ukraine agreed not to use the corridor for military strikes, Russia would agree to re-join the agreement. As a result, markets crashed and lost all of Monday's gains, returning to last week's levels. As yet, there has been no statement from either party to confirm the deal will extend beyond the initial 120-day period, which ends on November 19th.
Overall, speculators are losing patience and confidence with this market. It is clear volatility is here to stay, with the fundamentals of global supply and demand seeming somewhat diluted given ongoing trade conditions.
- Macroeconomics at play
Outside of Russia and Ukraine, financial markets are continuing to wrestle global rate hikes due to the US Federal Reserve Board lifting interest rates by 0.75% and the Bank of England following suit on Thursday with an increase to 3%. This rocked currencies, with sterling dropping 2% on Thursday - exacerbated by predictions of a 'prolonged' recession. UK supply and demand still looks heavy as slow demand chases a large surplus of around two million tonnes, so UK growers with wheat unsold will benefit from a weaker sterling and any export interest.
- Global picture
As always, a delicate balance of global supply and demand factors is at play. Canada has a 34-million-tonne crop. Russia has a record 100-million-tonne crop with a 47-million-tonne exportable surplus. Australia is on course for its second largest crop in history of 34 million tonnes, despite widespread flooding. The story in North and South America is gloomier with persistent and problematic drought which is impeding crop growth at every stage. US wheat ratings this week came out at just 28% good to excellent which is its lowest rating in history. South of the border, the Argentinean wheat crop has been revised lower to 13 million tonnes and the government there have granted free extensions to exporters in a bid to keep domestic supplies plentiful in the short term.
BARLEY
- Global futures markets influenced by Russia's announcement
Global futures markets rallied sharply at the start of the week after Russia's announcement to suspend its involvement in the grain corridor. However, nearly all these gains were given back following Russia's U-turn on Wednesday and this left markets almost as they were in terms of value compared with this time last week.
- Feed barley values
Feed barley buyers were reluctant to chase values significantly higher at the start of the week, with fresh compound demand again limited. October was the fourth mildest on record in England, which highlighted the fact that many ruminant producers in particular have been able to leave stock outside for longer given good grass growth for the time of year. Demand to the ports remains strong with the UK able to connect on export business to Spain and Portugal over the last couple of weeks. Weaker sterling versus the euro since the latest Bank of England interest rate increase has helped UK export competitiveness, although buyers' and sellers' ideas remain apart on any fresh trade due to the volatility seen in markets this week.
OILSEED RAPE
- Record production level of oilseed rape expected to exceed demand
In recent weeks, prices have improved in the oilseeds markets despite strong production globally. In terms of rapeseed, the world is expected to produce around 76 million tonnes in 2022/23. This is a record level which is expected to outweigh any increase in demand from the biofuel and food sectors
Between 26th October and 2nd November, ex farm rapeseed values in the UK gained around £20/t. This was primarily due to speculation around whether Russia would extend its Black Sea corridor agreement. When it was confirmed that Russia would suspend the agreement, markets were sent upwards because the withdrawal of Russia from the agreement would make exporting via the Black Sea almost impossible. Quickly afterwards, it was confirmed that Russia will re-enter the agreement and markets proceeded to fall. This indecisive action is leading European crushers with unshipped product from Ukraine to fill the shortfall in supply from a relatively abundant domestic supply.
- Weather conditions across the globe
Another factor that is being watched in the rapeseed market is extreme rainfall levels in Australia. Focus is set particularly on the East, which is typically the lower rapeseed production area. The damage caused by the rainfall will be known after harvest, which is imminent. Even with rain damage, a bumper crop is expected.
Beyond rapeseed, the focus in the oilseeds complex is planting conditions for soybeans in both Argentina and Brazil, which are traditionally primary producers of the crop. The current conditions are not perfect and, in combination with recent political events, activity in South America will be under scrutiny from the trade in coming months. In particular, Argentina and Brazil's ability to plant soybeans and any policy that affects farmers will be assessed.
As always, the other big sway factor in oilseeds markets is China's demand for vegetable oils and oilseeds. There are renewed concerns over increasing lockdowns and therefore demand reductions.
FERTILISER
- Urea/AN
The nitrogen market remains relatively quiet with little domestic activity. Since the middle of October, urea terms showed signs of softening but they have since recovered and have levelled out again due to more global activity this week. In addition, another Indian tender is likely for December shipment and tonnages are reported to be between 1.2-1.4 million tonnes. The previous tender for November was secured at 1.5 million tonnes. Ammonium nitrate offers remain limited due to slow demand, with shippers not keen to commit to volumes in a quiet market.
- Liquid
The marketplace remains quiet and offers from UAN suppliers are unchanged from both a value and availability perspective. As cereal drilling draws to a close, growers who have taken the opportunity of this open drilling window and put more winter cereals in the ground should look to reassess requirements for the coming season. Although tonnes are limited, a full nitrogen and nitrogen sulphur range is available for both autumn and spring delivery. Growers are encouraged to include Limus® Clear throughout spring applications that are at an increased risk of ammonia losses.
- PKs
We have seen little to no change in phosphate and potash prices in the last seven days due to low demand. Potash in particular is expected to firm again soon, so it is advised to look at soil indices and calculate requirements whilst keeping an eye on the markets.
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