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Frontrunner - 10th July 2020

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WHEAT

  • Strong gains for US wheat futures

Chicago Board of Trade (CBOT) wheat futures prices rallied by more than 6% this week as speculative funds bought heavily, covering large parts of their short positions. This surge in buying was triggered by reports of poor early harvest wheat yields in France and the Black Sea region. Buying was also triggered by a string of revised wheat crop production estimates that has seen output lowered for some of the world's primary wheat exporters.

The Institute for Agricultural Market Studies (IKAR) cut its Russian wheat crop estimate by 1.5 million tonnes, bringing its total estimate down to 78 million tonnes. The French Ministry of Agriculture and Food, in its first wheat crop estimate this year, cut the country's wheat production down to 31.3 million tonnes. This estimate is significantly below last year's total production of 39.55 million tonnes. If realised, this will be the smallest French wheat crop since 2004.

In the Southern Hemisphere, wheat planting in Argentina was hampered by prolonged dry weather, which led the Rosario Grain Exchange (ROFEX) to cut its wheat crop estimate from 21-22 million tonnes to only 18-19 million tonnes. This is due to drought conditions which prevented farmers from planting a total of 400,000 hectares, shrinking the total wheat area to only 6.6 million hectares.

  • Russia dominates Egypt purchases

Egypt held its latest tender this week to buy wheat for August shipment and it was Russia that proved to be most competitive, securing all sales at a total of 240,000 tonnes.

The 2019/20 season saw Russia and the EU neck-and-neck in the race to ship the most wheat. Ultimately, it was the EU that finished ahead. Adjusted data from Brussels this week puts EU-28 soft wheat shipments at 34.6 million tonnes. However, next season will not realise similar figures in light of reduced French crop prospects.

The Ministry of Agriculture of the Russian Federation predicts 2020/21 wheat exports will reach 35 million tonnes, which would put its shipments approximately ten million tonnes ahead of the EU. However, with the Russian wheat harvest passing 11% completion, wheat yields are down 25% on last year. So far, outputs are worse than predicted.

Russian wheat crop estimates range from 74 to 81 million tonnes. However, unless there is a marked improvement as harvest continues, even the lowest of these estimates will not be achieved. Russia has previously stated it would impose export quotas during the second half of the season if necessary to safeguard domestic supplies.

  • Lower 2020 UK wheat crop area confirmed

This week, the Agriculture and Horticulture Development Board (AHDB) published its 2020/21 planting survey results and confirmed that the UK wheat area is 25% down on last year. Only 1.363 million hectares were able to be drilled during the most challenging autumn and winter conditions in living memory.

In terms of timing and method, this season has probably produced the most variable crop ever seen. The record-breaking warm, dry May brought additional challenges for developing wheat crops across the country. Although recent rain has been beneficial, even the most optimistic analysts could not expect average yields to be achievable.

The likelihood is that this season will see crop production at nine to ten million tonnes in comparison to the 16.2 million tonnes produced in 2019.

Wheat imports of up to three million tonnes may be required to meet demand and, with quality not assured until wheat is safely in the barn, the supply trade industry could face unprecedented challenges in the weeks ahead in meeting its customer needs.

  • China corn production lower

The USDA Foreign Agricultural Service cut its corn production estimate for China by approximately 4%, from 260 million tonnes down to 250 million tonnes. This is due to the presence of damaging army worms.

At the end of June, the USDA reduced the US corn planted area by five million acres from its March report. This loss of acreage is the equivalent of over 20 million tonnes of wheat. On Friday afternoon, the USDA will publish its July World Supply and Demand Estimates (WASDE) report. If these corn production losses are taken into account alongside the recent lowered estimates for global wheat production, a bullish report is likely.


BARLEY

  • Barley harvest begins in England

This week has seen the start of the winter barley harvest in southern regions of the UK. Early indications are mainly of good quality and promising yields. However, this is an early snapshot from areas that did not suffer the worst of the poor autumn drilling conditions or the wettest conditions over the winter. Rain across much of the UK in the last few days has halted further progress and we will probably have to wait until the middle of next week before harvest resumes.

Indications from France are that winter barley quality is good, with relatively low screenings and mid-range protein. Yields are at the five-year average, but no more.

  • Barley market quiet

The barley market has been relatively quiet this week with most activity seen around spot demand into UK domestic consumption. A mixture of trade shorts filling in existing sales and a few consumers looking for spot loads has comprised the majority of the activity. The last of the old crop stocks are being sold as available prices for new crop are released. New crop is seeing a small premium.

The export market has been largely neglected this week despite a general rise in commodity prices in both America and Europe towards the end of the week.

  • AHDB planting survey

The AHDB Spring Planting and Variety Survey results that were released this week showed the Great Britain winter barley area for this harvest declined 34% year-on-year to 296,000 hectares following the wet autumn. Spring barley area compensated for this decline by being up 52% year-on-year, rising to 1.063 million. All of this increase in production originated in England. The eventual size of the UK barley surplus this season will depend heavily on the yield of the spring barley crop across the Midlands.


OILSEED RAPE

  • Stable prices

There has been little movement in domestic prices over the week, with slightly firmer European futures markets being counterbalanced by the depressing effect of a firmer sterling. Elsewhere, markets have been on hold waiting for the release of the July WASDE report from the USDA. This report is the first one in the series to take into account changes in the US cropped areas which were highlighted in the plantings report published a couple of weeks ago. As always, the impact of the report will be based on how it compares with traders' expectations, but it does raise the possibility of some price volatility coming back into what has been a remarkably stable oilseeds complex in recent weeks.

  • UK plantings sharply lower

This week, the UK trade has primarily been focused on the implications from the release of the AHDB's Spring Planting and Variety Survey. Its autumn Planting Intentions Survey, updated in February, saw the UK rapeseed crop expected to shrink by almost a third, but this latest report is predicting a slightly better 28% drop in English plantings, with Scotland left almost unchanged from last year. Nevertheless, this would represent the lowest planted area since 2002 and, with the AHDB currently rating 41% of the crop as being either 'very poor' or 'poor', the prospects are set for a sharply lower output from the coming harvest.

Normally, this might have been a cue for prices to move upwards, but the UK had already factored in a substantial import requirement for 2020/21 and, with current markets priced up to the cost of import replacement, there is little headroom for further increases. Going forward, price increases will only be possible through a strengthening in global markets or weakness in sterling exchange rates.


 PULSES

  • Pea trade gearing up for next year

After a surge in Covid-19 related demand from consumers, the trade has now significantly quietened and bids from the end consumer are few and far between as their 'panic-bought' stocks are seeing them through to the new crop year. With a large share of peas being grown on contract, there are also very small amounts being offered on farm. Due to these factors, old crop values are rapidly conforming to lower new crop values.

This moves the interest to next year, where decisions are being made on cropping and marketing. There is significant demand in planting pulses for winter and spring 2021, partly due to difficulty with oilseed rape crops and also increased marketing opportunities for pulses. In a year where planted pulse areas may be rising, it looks increasingly sensible for growers to lock into a buyback contract.

For crop 2021, Frontier is now offering a minimum-maximum buyback on large blues at £225 to £275. For more details on all pulse contracts, please get in touch with your Frontier on farm contact. 


 FERTILISER

  • Nitrogen

Domestically, little has changed for fertiliser markets as focus turns to harvest and autumn cultivations. In the global markets, however, European nitrate manufacturers will have taken heart from increased buying activity from one of the world's biggest urea consumers: India. A recent tender has helped stabilise granular urea values and the announcement this week of a new tender for the supply of 600,000 tonnes will add further strength to the market. In fact, this helped give continental markets the confidence to continue increasing their price for calcium ammonium nitrate and ammonium nitrate in Germany and France.

The market is still waiting for the liquid market to indicate what level spring fill volumes will be priced at and it may still be a couple of weeks before we see these levels confirmed. In the meantime, autumn fill prices remain good value.

  • PKs

P and K markets continue to be buffeted by exchange rates and also a competitive DAP market which has pushed TSP prices lower. Getting crops established well this autumn is going to be a high priority and application of fresh phosphate in the seedbed can have a tremendous benefit in promoting early vigour and root development. With haulage focused on delivery of early season nitrogen orders, we would advise booking autumn P and K requirements early to ensure product is on farm when required.


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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