UK natural gas price reaches two-year high: Grain market daily

• UK feed wheat futures (May-25) closed at £187.85/t yesterday, down £1.35/t from Wednesday’s close. The Nov-25 contract fell £0.55/t over the same period, ending the session at £195.85/t.
• Domestic wheat followed European grain prices down yesterday on the back of doubts over export demand. Despite news of fresh demand from key importers Algeria and Saudia Arabia earlier in the week, it does not look as though Western Europe will take much of the business. Black Sea origin wheat including from Ukraine, Romania and Bulgaria is expected to make up much of the supply (LSEG).
• May-25 Paris rapeseed futures closed yesterday at €522.25/t, up €0.75/t over the session. New crop futures (Nov-25) gained €0.25/t over the same period, to close at €491.75/t.
• European rapeseed prices ended relatively unchanged yesterday, with pressure from Canadian canola futures, but support from the US soyabean market. The Rosario Stock Exchange cut Argentina’s maize and soyabean crop estimates yesterday, following the extreme heat and drought conditions. The country’s soyabean crop is now estimated at 47.5 Mt, down 4.5–5.5 Mt compared to the initial estimate made in September.

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On Monday, nearby UK natural gas futures reached their highest point in over two years, at 141.25 p/therm. This is more than double prices during the same month last year; prices reached a low of 56.46 p/therm on 23 February 2024. Forward prices moved alongside nearby futures and on Tuesday the Jun-25 contract reached its highest point since December 2022. Nearby EU natural gas futures also reached two-year highs this week.

The reason for this increase in price is largely due to diminishing stocks, colder than normal temperatures, and supply uncertainties with reduced renewable power generation.

Storage levels have dropped both domestically and across the EU. In the EU, as at Monday, storage levels had fallen to an average of 48.5%, well below where they should be at this point in the year. Domestically, that level was even lower, at 25.7% (Gas Infrastructure Europe). It is estimated by Goldman Sachs that to get storage levels back to a more normal level, Liquified Natural Gas (LNG) imports would need to be 8% higher than initially expected.

Futures prices have eased a touch in the past couple of days. However, if gas demand remains high, or Asian buying of LNG ramps up, stocks could be further stretched and prices supported further.

The key watchpoint moving forward will be weather conditions throughout the coming weeks and into the spring. As it stands, the Met Office’s long-range forecast currently predicts that despite a cold spell over the coming week, conditions will be milder towards the end of the month and into the start of March.

Another factor to watch is the potential for tariffs on goods coming from the US. The US is already Europe’s largest supplier of LNG, and as such any threats of tariffs could have significant impacts on markets. 

What could this mean for UK growers?

As is well known, much of the cost of producing fertiliser is made up of natural gas costs, and as such a rise in natural gas futures will likely filter through to fertiliser markets.

Slight increases are already being seen in GB fertiliser prices. In January, the price of imported Ammonium Nitrate (AN) (34.5%) averaged £352/t, compared to £334/t in December. However, this remains much lower than the five-year average of £429/t for that month. With the support in natural gas prices over the last few weeks, we could see another rise in fertiliser prices in February.

Longer-term, trends in natural gas prices and the watchpoints mentioned in the section above, will be key factors to think about when deciding to purchase fertiliser.

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