This report is provided by our Marketing Partners Frontier Agriculture.
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Heavy UK wheat crop weighs on prices
London wheat futures fell to new contract lows this week as our market tried to find demand. Yields for most of the UK wheat crops harvested so far have been significantly higher than most expected, above the five year average, which points towards a sizeable exportable surplus. Recent sterling weakness has helped UK supplies compete to our traditional European homes but so far demand has been very slow, allowing for only a few small cargos to be sold in the nearby positions.
More concerning is the changeable weather. Opportunities for combining have been limited this week, particularly in the north and west, raising concerns for the quality of standing crops. Hagberg in recently cut wheat has remained robust, but the heavy rain this week may have been damaging. A major difficulty will be the high moisture content.
North African milling wheat markets demand maximum 14% moisture which will be a challenge to achieve without drying facilities. This will hinder marketing until more is known about the crop. With consumer activity slow, prices are likely to remain under pressure in the short term. Uncertainty surrounding Brexit is providing additional pressure with sterling firmer into the weekend.
USDA sees off the bulls
The USDA produced its August world supply and demand report on Monday. Within it was the eagerly awaited update for planted US corn acres. In June the USDA increased its drilled estimate way beyond traders' expectations given the persistent rainfall that stopped farmers planting the crop in the normal time frame. A lot of the crop could not be drilled until June and it was thought a significant area could not be drilled at all. However, the USDA shocked the market again both with their estimated area and yield. Average analysts estimated the drilled area at 87.7 million acres and yield 164.9 bushels per acre. The USDA estimates 90 million acres drilled and yield 169.5 bushels per acre. The impact of this data was dramatic and immediate with US Chicago Board of Trade (CBOT) corn futures quickly trading to limit down as the speculative funds liquidated their long positions.
EU-28 wheat crop increases
For other members of the European Union, the wheat harvest is drawing to a close. French farm office FrancAgriMer stated on Friday that the French wheat harvest was going to be completed by 12th August.
Analyst, Strategie Grains highlighted higher French yields in their latest report, contributing to an increase on their previous report for the EU-28 2019 soft wheat crop of 2.3 million tonnes to 142.9 million tonnes. This is almost 16 million tonnes up on last year's drought affected crop and provides a more than ample supply. It shows a year on year increase in domestic consumption of 7.5 million tonnes. Wheat exports will need to jump by almost 3 million tonnes on the year to avoid a burdensome year end stock.
Strategie Grains is optimistic for EU exports following the recent slump in German, French and UK prices. However, in the short term, cheap freight from the Black Sea is putting supplies from that origin at the forefront. Russia and Ukraine dominated the latest Egyptian wheat tender this week securing sales of 175,000 tonnes and 120,000 tonnes respectively.
This week's USDA report took priority and it has had a bearish impact on the world feed grain markets. Despite the area of planted crop being lowered, a 2% increase in US corn yields and a 9% increase in ending stocks saw corn futures trade lower. With barley competing with corn for a place in animal feed rations, the bearish sentiment spread into world barley markets which were weaker following the report.
UK export values were supported at the start of the week by a weaker sterling, but a firming currency towards the end of the week has reduced their competitiveness. With the market digesting the USDA report and national holidays across Europe on Thursday, trade discussions are likely to continue after the weekend.
The spring barley harvest once again has been disrupted by the weather, with some crops now being harvested wet in England. The Scottish spring barley harvest is just underway. Yields and nitrogen levels are looking positive at this early stage.
As a result of good quality levels and positive yields, UK malting barley premiums remain under pressure.
Flat global markets
There has been little change in prices this week, while world markets supported by a slightly softer tone to the US and China trade dispute. Weaker fundamentals have been driven by rain in the parched US Eastern belt and the heightened fear of a world recession, with associated lower energy and equity values.
The EU market is limited by the cost of imports. Ukraine shipped almost half a million tonnes of seed to Europe in July which represents a 48% jump from July 2018. Canadian canola is also very competitive but can only be used for bio-fuels given its genetically modified credentials. Traders estimate that up to 2 million tonnes of this material might be imported into the EU this season.
Mixed harvest fortunes
The UK oilseed rape harvest continues to struggle in the north due to very poor weather conditions. In the north there have been very few days without rain in August and some of the downpours have been heavy and prolonged. Yields have so far held up but quality is inevitably suffering. It's interesting to note how UK prices have moved relatively in the past year between cereals and oilseeds. Wheat prices for November 2019 have dropped by £39.00 per tonne over the last 12 months whereas oilseed rape prices have gone up £24.00 per tonne over the same period.
Bean market under pressure
The bean market continues to come under pressure. The delayed harvest, impact of high yields and the need for harvest movement is putting strain on prices. Over the past week values have fallen £5 per tonne and with limited demand out there, we expect to see values drop further.
Quality of the bean harvest is very variable. The bulk of samples so far analysed have contained winter Tundra beans, which are generally too stained or marked for human consumption and have recorded bruchid damage of 8% to 30%. The few spring bean samples we have seen have been a better colour, but still have bruchid counts over 10%.
The dried pea harvest is still only 50% completed and some of the most recent samples are showing much higher levels of bleaching. Despite these concerns buyers and processors are still only covering spot demand as there are offers of Canadian quality pea imports at levels only £10.00 to £15.00 above current UK prices. With an improved weather forecast next week we should see more harvesting, allowing the market to make a more accurate assessment of this year's crop.