Frontrunner - 22nd October 2021

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WHEAT

  • Concerns for Chinese output

China is the largest wheat producing country and the United States Department of Agriculture (USDA) estimates the country's total production this season will reach 136.9 million tonnes. However, Chinese government officials said this week that persistent heavy rain impacting the main wheat producing areas across the country has left planting at only 26% complete so far. This is 27 points below the normal pace. Nevertheless, the State Council of the People's Republic of China said authorities would work to ensure a bumper harvest next summer. Annual wheat consumption this season is expected to be up to 149 million tonnes which highlights the need for successful harvests. Wheat stocks at the end of this season are expected to fall three million tonnes on the year to a total of 141 million tonnes. This equates to just over half the world total, despite ten million tonnes of it being imported.

  • EU wheat prices make nine-year highs

A strong EU wheat export pace is one of the primary market price drivers, but official data from Brussels is failing to illustrate the full extent of shipments. Weekly trade data updates were up just 300,000 tonnes on the week, totalling at 8.671 million tonnes – 2.3 million tonnes ahead of last year. However, there were no updates for French shipments, which remained at 719,000 tonnes. EU officials said that data was missing from France dating back to July, the first month for the 2021/22 season. Private estimates for French wheat shipments to date exceed two million tonnes. This suggests that corrected data could see EU exports topping ten million tonnes by the end of October; a pace which is not considered sustainable. Wheat prices would need to stay high to eliminate export demand and maintain sufficient supplies for domestic needs.

Algeria, which is traditionally the primary destination for French wheat exports, will need an additional 450,000 tonnes of imported wheat this season, with up to eight million tonnes needed following a 38% decline on the year in domestic grain output from its 2021 harvest.

  • Ukraine increases export targets

This week analysts increased their wheat production estimates for Ukraine to 32 million tonnes – 7.5 million tonnes up on last season. Traders agreed a wheat export cap of 25.3 million tonnes, up from 17.5 million tonnes last season, with shipments to date up to 10.7 million tonnes. This situation contrasts sharply with Ukraine's neighbouring country, Russia, where exports are being restricted by increasing export taxes. Russian wheat shipments at the end of September are estimated to have reached just short of 17 million tonnes, which is just below 4 million tonnes behind the same period last season. Shipments from the first half of October are at 1.2 million tonnes. This is half of what was achieved at the same time last year. EU shippers are benefitting from Russia's export control measures, with rumours of further monthly quotas being employed from February 2022. The USDA estimates both the EU and Russia will export 35 million tonnes of wheat this season.


BARLEY

  • Feed barley values firmer again on the week

Feed barley values firmed once again on the week with strong demand, especially from the domestic market. Barley is holding its small discount to wheat as inclusion rates remain high given logistical and labour issues within grain and livestock supply chains, especially in the short term. Barley remains attractive in comparison to imported substitutes, as higher freight costs and a delayed corn harvest pace in France in particular - which is at 32% complete versus 75% complete this time last year - make imports more expensive to execute and limited in volume.

  • Malting premiums remain strong, especially into New Year

Demand for malting barley both domestically and on the export market continues. Logistical pressures mean that farmgate premiums are greater in the forward positions. The first exports of malting barley have been leaving UK ports this month, with more vessels expected over the coming weeks.


OILSEED RAPE

  • More contract highs

More contract highs have been seen on markets around the world this week, with palm oil futures finding record highs and Paris rapeseed futures briefly touching €700/t. The UK domestic market was surged by £15/t and there is seemingly no end to the bullish run on rapeseed prices. Demand for rapeseed oil is proving to be resilient to higher prices; part of the reason for this is that it has a particular taste and palm oil, the best substitute, is expensive. The other part of the equation is that rapeseed oil is used in many products but is often only a minor part of the retail cost of the end products. For example, a 500g tub of spreadable butter typically retails for about £3.50 and contains approximately 30% rape oil. At current oil prices, this is about 20p worth of oil, meaning any further increases in the oil cost is unlikely to lead to any significant drop off in demand for the product on supermarket shelves.

  • Palm oil is the key to rapeseed prospects

Soybeans, in terms of volume, are normally the dominant commodity within the wider global oilseeds complex. However, it appears that palm and rapeseed are two markets that are now showing a high degree of parallel movement. The Malaysian Palm Oil Council (MPOC) cut its forecast for 2021 palm oil earlier this week, triggering a surge in futures prices. Malaysia, which is the second largest producer of palm oil, approved 32,000 work permits for overseas workers in an attempt to boost production. If this is successful, it would remove some of the support for palm oil prices. This could have a knock-on effect on rapeseed markets.

  • Increased rapeseed production likely in 2022/23

Rampant energy prices and signs that China is stepping up its activities in global markets are keeping prices trending higher. Crush margins are generally improving which will keep demand coming forward. Markets are already starting to get in position for the fight for Northern Hemisphere spring acres. US plantings will be seen as a critical indicator, with soybeans, corn, spring wheat and oats all competing for a limited supply of land. Given what has happened in rapeseed markets recently, we are likely to see a surge in supply for 2022/23. However, weather will play a critical part and the situation in Canada this year is a prime example of what can happen if crop conditions turn adverse. High fertiliser costs are another factor to consider and could lead to slow farmer selling and lower yields if application rates are trimmed back.


 PULSES

  • Unfortunate low premiums

Bean values continue to move upwards as spot demand and limited farm selling keep the market very tight in nearby positions. In the north, reasonable volumes of human consumption beans have been traded to meet the short window of demand in Egypt before the arrival of the first Australian beans. With poorer southern quality and premiums limited at £20-25/t, only beans from north Lincolnshire up to the Scottish borders are generally suitable to achieve levels of £260-275/t ex farm for the very best quality.


 FERTILISER

  • AN/Urea

This week saw granular urea traded at a premium of £25/t more than the previous week. This is again due to high import values, with Egyptian trade at $850/t FOB at the time of writing.

Freight costs remain high and there appears to be no let up on these values going forward. In addition to this, with demand still to come from India and restrictions on exports from some urea producing countries, the direction of travel on prices is expected to increase further.

Imported AN remains tight, and there is no doubt that the AN currently available is not going to be sufficient to supply our market requirements.

  • UAN

The UK market still awaits spring values from suppliers and once these values are released, volumes will be limited.

  • PKs

MOP and TSP values remain firm and further price rises are expected going into November for December delivery. MOP is trading in Brazil at £588/t at Dockside, with haulage and margin to add. This suggests that MOP could increase a further £50/t in the UK. It is worth emphasising the importance of polysulphate based products this spring, given the shortage in supply of nitrogen sulphur products.


Get in touch

Please speak to your local Frontier contact or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for more information or advice related to any of the topics and services mentioned in this report. 


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