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Frontrunner - 11th December 2020

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WHEAT

  • Russian wheat exports in focus

World wheat markets posted sharp gains this week, recovering much of the losses they had made since the end of last month. The primary driver for these positive moves was news that Russia may introduce additional measures to control wheat exports. Russia has previously established a quota of 17.5 million tonnes to limit wheat exports between February and June 2021, but so far this has proved to have little impact on its domestic market prices.

President Putin criticised officials and market participants over rising prices for essential foodstuffs, such as wheat and flour, which are reported to have reached record levels in Russia. The Russian Prime Minister said measures must be taken to stabilise domestic food prices. Traders may now expect export taxes to be employed at some stage. The mechanism is already in place and could be implemented at any time. Potential for disruption of supplies from Russia, the world's leading wheat exporter, could lead to further volatility in world markets.

  • USDA signals increased demand from China

The United States Department of Agriculture (USDA) published its final world balance sheet estimates for 2020 on Thursday afternoon. For both wheat and corn, it made minimal changes to production estimates. The USDA has placed world wheat one million tonnes higher and world corn one million tonnes lower on last month at 773 million tonnes and 1.143 billion tonnes respectively.

However, it is consumption estimates which carry the most notable changes, especially those for China. In the report, the USDA estimates China will use an additional three million tonnes of wheat and 3.5 million tonnes of corn. The increase in corn demand is predicted to come from an increase in imports, which the USDA estimates will rise to 16.5 million tonnes. In its first 2020 estimates, published in May, the USDA estimated imports would be only seven million tonnes. This sharp increase in imports, coupled with lower corn production for the US, Ukraine, Russia and the EU, has helped fuel wheat and corn markets since August. Combined, wheat and corn stocks were estimated to be seven million tonnes lower than last month.

  • 2021 French wheat area lower than expected

Paris wheat futures found support earlier this week when the French Ministry of Agriculture published its winter wheat area estimates. Similar to the UK last autumn, French farmers struggled to complete their planting, which totalled only 4.21 million hectares. Coupled with poor yields, this resulted in a crop 10 million tonnes lower than the previous year. Improved drilling conditions this autumn suggested winter wheat drilling would reach five million hectares or more, but the Ministry of Agriculture has estimated it will reach only 4.73 million hectares.

  • Brexit continues to deliver uncertainty and volatility

Following his meeting with EU officials on Wednesday evening, Prime Minister Boris Johnson warned that it is increasingly likely the UK and the EU will part without a deal in place for 1st January 2021. This led to increased price volatility for our domestic market as sterling lost 2% against the euro and the prospects for tariffs on imported EU wheat became a distinct possibility. Talks continue while Sunday 13th December has been set as the final deadline for a Brexit deal.


BARLEY

  • Brexit uncertainty stalls EU trade

The Agriculture and Horticulture Development Board (AHDB) released its latest UK cereals trade data earlier this week. The UK exported 140,524 tonnes of barley for the month of October, taking the season total to 412,719 tonnes. The Dutch market has presented the largest demand for UK barley exports this season so far, with nearly half of the total exported by the end of October destined for the Netherlands. Exports to the EU and beyond have continued for November and December, but uncertainty over a Brexit deal is limiting any EU trade into the new calendar year. With currency significantly weaker on the week due to Brexit negotiations stalling, the UK remains competitive to destinations beyond the EU market.

  • Strong domestic demand for barley

Barley is maintaining its wide discount in comparison to other feed grains and continues to see strong domestic demand, which is expected to increase by up to 17% from last year. This strong domestic demand is expected to continue through until the summer.


OILSEED RAPE

  • Firm domestic market

The weakening value of sterling and a €10/t jump in European rapeseed markets have helped propel UK domestic prices back close to all-season highs. US soybean exports remain at record high levels, offers of Brazilian beans are almost impossible to get prior to March next year, and it is recognised that the US cannot continue to be the default supplier to the world indefinitely. US soybean stocks, based on the year-end estimate in last month's USDA report, would only represent 2.5 weeks of Chinese imports. This illustrates that global markets urgently need a South American harvest that is both plentiful and on time.

  • Concerns continue over South American drought

Traders anticipated some downward revision in South American production numbers in this month's USDA World Agricultural Supply and Demand Estimates (WASDE) report. The drought in this region continues to be a concern, with one report recording that the Parana River in Rosario is at its lowest level for 50 years. Time is running out for these bean crops to be saved from the dry conditions and, on this basis, it is difficult to see much weakness in markets in the near term.

Postscript: On Thursday evening, the USDA report revealed a one-million-tonne drop in Argentina's forecast bean production and an unchanged picture on Chinese demand. There was a slight tightening in year-end stocks. However, overall, the report was not as bullish as expected and the market's initial reaction has been to trade lower.


PULSES

  • Minimal price movement for feed beans

UK bean values continue to trade independently from other UK grains. This means, despite the value of sterling weakening and wheat prices rising, feed bean values remain reluctantly quiet with minimal price movement over the past week. The next price moves will be determined by UK consumer demand in the new calendar year. However, with only a few feed mills currently using beans, it is unlikely we will see any big increase in demand due to a relatively short period of the winter feeding season remaining.

Meanwhile, prospects for new crop look a little better, with Frontier offering buyback contracts based on premiums over London wheat futures values.


FERTILISER

  • Nitrates/urea/UAN

This week has seen another increase as mainland European 33.5% ammonium nitrate levels moved up again by €5/t. Urea levels also moved up slightly as India tendered 1.2 million tonnes for delivery by 6th January.

Activity with ammonium nitrate in the UK has been good as growers confidently take cover ahead of the next anticipated price rise and undertake risk management ahead of Brexit and the uncertainty that a 'no deal' will bring.

Urea markets have remained quiet throughout the fourth quarter and the industry now has very low physical stocks due to a continued lack of interest. Therefore, the UK will have to reflect higher replacement prices in January for those that still need products. The market awaits to see if suppliers will have the confidence to bring more in.

CF Fertilisers has pulled out of the December market today, which is unsurprising given the short month and continued pressure on logistics. Other suppliers are expected to follow, most of which will not offer January prices until the Brexit outcome is known.

UAN values are available for spring 2021 delivery at current terms.

  • PKs

Demand remained for TSP, DAP, MOP and related blends this week as growers continue to take cover before the end of the year. Europe is also reporting strong demand which is keeping prices firm. The demand for these blends, as with ammonium nitrate, is expected to continue into 2021. However, with the added pressure of tight logistics, this unfortunately paints a gloomy picture for the spring supply chain.

Growers are advised to continue to discuss product options with their Frontier contact and plan spring requirements very soon.


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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