WHEAT

The US market is trading about $4-5/t higher on the week, mainly as a result of last night’s sharp rally.

The combination of further weakness in the US dollar and continued concerns over dryness in the US plains sparked some fund short-covering on the Chicago market.

While the technical side of the market (fund shorts and moving day averages) and the potential for the US winter wheat market to rally have been with us for some time, they hadn’t kicked in until last night.

It is now to be seen if last night’s move is tied to additional short covering by the funds.

While the US market rallied, the lack of any weather adversity in the northern hemisphere, plus the impact of the weakness in the US dollar, leaves EU markets operating under continued pressure.

The market has seen a glimmer of support, as a move to a nine-month high in the ruble (due to a renewed crude oil rally) pushes up Russian export prices, although EU supplies still remain highly priced.

Algeria is back in this week, and with Argentine wheat $20/t cheaper than French, it will again be of interest how much demand is taken away from the French.

The UK market, after posting three consecutive yearly lows (LIFFE May position), is trading down about £2/t on the week, as sterling continues to strengthen against an ailing US dollar.

However, in areas of the country where demand remains strong, physical prices are showing great resistance in moving lower, as suppliers show reluctance to ‘sell the market down’.

The balance sheet fundamentals still remain bearish and, with a potential easing in the forward carries, current levels in high-demand areas especially provide growers with attractive levels in the nearby positions.

In summary, was yesterday the start of a major fund-led buying rally, or just another vain attempt to push up prices?

As we have witnessed recently, currency is increasingly taking on an important role in markets, especially in the US, EU and here in the UK. The dryness concerns in the US have been with us for some time, but weather conditions during February and March will eventually govern final crop prospects, rather than the current weather, as the crop remains in dormancy.

Black Sea wheat, along with Argentina, remains the cheapest wheat in the world, and the move higher in both the US and Europe yesterday was the last thing they needed, with dwindling export opportunities. Fundamentals would point to a return to lower prices, unless the technical markets kick-in big-time.

OSR

Weather in South America remains a key focus for the shorts in the CBOT soy market. It is looking increasingly likely that production in Argentina will fall below expectations but, given the size of its stocks, it is going to have to be a real and significant issue for this to change the overall availability and therefore the bearish outlook remains.

The European rapeseed futures market continues to slide, as the combination of the firming US dollar and the weight of the bearish fundamentals continues to weigh on prices.

Imports into Europe, a slowdown in crush, and the potential for a significant re-building of stocks are all hurting the market.

Sterling has rallied sharply this week, benefiting from the news that UK unemployment remains at an all-time low, at 4.3%. Sterling has climbed 1.5% vs the US dollar since yesterday morning and is now only 5 cents away from its pre-Brexit level.

Against the euro, the pound has rallied 2 cents since last week, taking £6 off UK farmgate prices, without taking the further declines in the Matif into account.

Unfortunately, the outlook continues to look bearish for both old and new crop. Unless we see a sharp decline in sterling or a significant crop problem, it is currently difficult to see what stops the market sliding further.

FERTILISER

Granular urea

This week has seen a number of sales and Egyptian producers are now close to selling out of February tonnes.

There is no news yet on the announcement from India of a tender, but with sales in the country up and imports behind year on year, it is likely to need to enter the market soon.

In the UK, stocks are low, and as we enter February with no more tonnes booked to arrive, this will remain the case for the rest of the spring period.

Gleadell is in the process of discharging 27,500t of Egyptian urea in Immingham and can offer product in bulk and bags.

 Ammonium nitrate

CF has announced that it will pull current terms today (Friday 26^th Jan).  New terms are likely to be for March delivery.

The picture on imports remains unchanged, prices remain just below CF’s Nitram, but availability is low.

P and K

Demand continues to build for spring 0PK/NPK grades as the application window approaches.

Blenders, who have been selling at aggressive numbers in order to compete for the limited enquires, may see this as an opportunity to raise levels to reflect raw material costs.

Those looking for compounds have a number of quality imports now available, including a triple 15 with Sulphur and magnesium. Available in time for first applications, these compounds are likely to see increased interest if other compounds become unavailable for early delivery.