Lower N costs on the way?

February continued where January finished, with strong gale force winds and heavy rain showers – that left us with 124 mm, or 5 inches of rain, in January here in the Borders and land has begun to look like paddy fields.

We have seen little frost this winter and, apart from where water is lying, crops appear to have survived the winter in quite good condition. Maybe even too good, as far as being open to disease is concerned.

Gloom up above and down below in the market place continues too. Commodity prices continued to fall and last week the Liffe feed wheat futures for May, 2016, fell by £1.80 to £110.50 and earlier this week fell again to a new contract low of £108.30 and November, 2016, new crop was down £1.45 to £119.50.

Prices appear under pressure from the weight of EU and global wheat supplies, as well as a lack of serious new crop concerns to date. However, there are several countries with fewer crops planted for this year’s harvest this year due to weather issues and difficult planting conditions.

In South Africa, the first official estimates show a 38-44% drop year-on-year in maize production and, in Argentina, a 30% drop in soyabean output, both due to drought conditions. The US has planted its second lowest winter wheat acreage in a century but their remaining wheat crop is quoted as 55% in ‘good to excellent’ condition.

Due to recent poor weather in the US, many farmers are taking the option of using wheat as a feed source and 49% of their winter wheat crop is being grazed, which compares to 38% last year and rye grazing, at 70%, was also above the average.

Canada’s farm ministry is forecasting a drop of 20m tonnes of wheat because of lower area and poorer yields, while India is forecasting wheat planting down by 7% year-on-year due to a lack of rainfall and could lead to increased import requirements. The area planted to winter grains in Russia has also decreased by 7% from previous forecasts due to dry weather and the total area sown fell by 500,000 ha year-on-year.

The 2015/16 global barley crop is forecast to be up 5m tonnes from last year, mainly due to increases in the EU, Australia, Argentina and Canada. EU production is forecast up by 500,000 tonnes, with malting barley equating to just over 22% of total production.

The UK is the EU’s third largest barley producer, behind France and Germany, and EU barley stocks are now expected to grow by just under 1m tonnes over 2015/16, compared to the 2.5m tonnes estimated in December. Higher demand, both for export and for animal feed at the expense of maize is helping to limit the amount of stock build up.

The EU 2015 maize crop was down by 400,000 tonnes but this was mostly offset by an increase in the record EU wheat crop by 300,000 tonnes. Year-end stocks were reduced to 15.8m tonnes but this is still 4.8m tonnes up on the end of last season.

Russia and Ukraine together recorded a drop in barley production of over 3.5m tonnes in 2015/16. Both had lower areas planted to barley and the immediate impact is less Black Sea barley on the export market

Looking forward to the 2016/17 barley crop, the EU anticipates that output will reduce by 800,000 tonnes as yields return to normal.

The UK has produced two consecutive 7m-tonne barley crops and, with higher than normal carryover stocks into harvest 2015, it is reckoned that we have a 2m surplus of barley. Trade estimates are that exports reached 750,000 tonnes by the end of December and, with good exports this year so far, the pace will have to continue to export the surplus

Once again, crude oil prices, currency and weather were key drivers in the oilseeds markets last week. Brent crude oil futures prices closed up $3.26 per barrel at $36.82 /barrel due to speculation over a reduction in supply from Russia. However, oilseed futures prices fell again after the USDA reported that US exporters had cancelled soyabean sales totalling 395,000 tonnes to China.

The extent of the cancellations will be important, as the US is already expecting 4m tonnes fewer exports this season, despite availability being nearly 3m tonnes higher.

Some better news for crop costs is that Chinese potash buyers, whose contracts set the benchmark for the world market, will secure its lowest price in years.

Forecasts of a cut to $260 a tonne would be below the $315 that Chinese importers paid last year and less than half the $575 a tonne agreed for some contracts back in 2008 and negotiators are now hoping to get as low as $230 per tonne.

Nitrogen prices are also forecast to be sharply down over 2016 and Russian fertiliser suppliers forecast urea prices to drop as well.

Supplies of urea from China, which accounts for 45% of global urea production, are slowing as urea prices dropped below the cost of production, which resulted in a substantial decrease in urea exports from China in the second half of 2015 year-on-year.

Any input costs will be welcome as UK farm incomes fell by 9% in 2014 and indications are that they will have fallen again by a further 15% in 2015. This would be the first time since the 1990s that there has been a significant drop in two consecutive years.