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- Hot, dry weather raises concerns over crop quality
The week began with markets on an upward trajectory. Weather is hot and dry in Northern USA, Canada and throughout Europe. Any rain we might see is likely to be confined to the Black Sea region. Despite the dryness, the EU wheat crop should achieve a good volume. However, it will not be an early harvest this season, which raises concerns over quality and, subsequently, prices are generally supported.
On Tuesday, Algeria purchased 450,000 tonnes of wheat for August delivery, most likely originating from France, Germany and the Baltics. Despite this tender, inflated freight rates and current spreads make France one of the more expensive origins currently, so some price correction could be seen if French wheat is to compete in the export arena going forward.
- Wheat exports fall below estimates
The EU's total soft wheat exports are seen at 24.7 million tonnes so far this season in comparison to the 33.3 million tonnes exported at this time last season. This is according to the European Commission's latest report, although most estimates place soft wheat exports somewhere between 25-26 million tonnes to date.
This figure falls well short of the 30 million tonnes estimate from the United States Department of Agriculture (USDA) and is a result of smaller crops with higher internal prices preventing the usual heavy export flows.
- USDA report supports corn
Thursday's USDA report gave support for corn but figures were slightly negative for wheat.
As expected, the estimate for Brazilian corn production was reduced. The estimate is down to 98.5 million tonnes, reduced from the 102 million tonnes predicted in the May report, although many spectators predict further reductions to come.
For Russia, wheat production estimates were increased from 85 million tonnes to 86 million tonnes. EU estimates were also raised from 134 million tonnes to 137 million tonnes on the back of better weather conditions throughout Europe over the past month.
The overall effect these revisions have had on the UK market is a slight dip from mid-week highs. November 2021 opened on Friday morning at £175.00/t, down From Tuesday's close at £179.45/t. Improving crop conditions and the anticipated increase in UK production is pulling prices lower.
These forward prices are very strong compared to historic averages and, as such, consumer purchasing has been relatively quiet. It's a surprise, however, to find that farmer selling has also been quiet with around 25% of the forward crop sold.
- Domestic compound demand set to decrease
New crop barley is holding its discount to wheat at around £12-15/t and is generally following the wheat market as farmer selling remains slow with over a month to go until harvest. Domestic compound demand is expected to reduce significantly from crop 2020 as a result of a much smaller discount to wheat. However, given that the prices of other raw materials - especially proteins - remain high, good new crop demand is expected for barley.
- Warm, dry conditions will benefit crop development
Conditions over the last couple of weeks have certainly benefited UK crops with some much-needed warm temperatures after an unseasonably cold start to the growing season. Warm and dry conditions look set to continue through the weekend and into next week for parts of Scotland and most of England, which should see both spring and winter crops develop further. This has given the market a little more confidence in regards to harvest dates.
Conditions in the EU are also favourable and analyst group Stratégie Grains has once again added marginal increases this week to its estimates for the EU barley crop.
The market remains on weather watch for the coming weeks. Frontier has a range of contracting options available. Please contact your local Frontier farm trader to discuss further.
- Global weather conditions key market driver
This week, we have seen oilseeds markets responding strongly to changes in weather conditions, primarily in the US where news of improved rain prospects for the southeast and far Midwest soybean growing regions prompted a sell off of global oilseeds on Wednesday.
However, conditions are still mostly dry in the US and Canada where water is needed to feed a large portion of the world's oilseeds production. The global oilseeds complex is currently very tight with supply stretching to meet demand. Suppliers, traders and end users are anxious, knowing that relatively small weather shifts can result in sizeable market impacts.
- Australian rapeseed crop estimate increased
This week, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has raised its estimate for the Australian canola crop to 4.2 million tonnes, which compares to a five-year average of 3.4 million tonnes, and which is 200,000 tonnes greater than last year's production of four million tonnes. The increase in plantings comes as a result of excellent planting conditions and high price incentive. This tonnage can and will factor into the UK market from around December onwards to help fill the UK's rapeseed deficit.
- USDA report increases estimates
This week saw the latest World Agricultural Supply and Demand Estimates (WASDE) report released by the USDA. Whilst the trade expected little change to be reflected in the report, the USDA surprised the market by increasing stocks and production estimates for oilseeds, including a 600,000 tonne increase to the EU production estimate. There are questions in the trade as to how accurate some of the numbers are and whether the numbers are contradictory.
For now, the market is likely to go back to trading weather stories and awaits the June 30th Stocks and Acreage report from the USDA to further clarify figures. November rapeseed on the Paris Futures Exchange (MATIF) closed €4.75/t lower in reaction to the news.
Urea, energy and, in particular, gas prices continue to drive global nitrogen markets. This week, both Yara and CF Fertilisers withdrew terms, indicating another £10/t rise alongside increased pressure on supply and further increases in urea prices. Replacement granular urea values are now closer to £375-380/t, which means UK-produced 34.5% ammonium nitrate is far more competitive than has been seen for many years.
India is expected to return to the granular urea market in the next few days with an increasing shopping list - and the producers know they are coming. This will add more pressure into an already tight market.
Advice remains to keep an eye on the fluctuating market in order to stay ahead of changes.
- Liquid nitrogen
New terms are out today for summer and autumn tank fill with limited tonnage available. Prices are very similar to first offers for solid ammonium nitrate and, once again, price increases are likely as other markets firm.
More reports suggest phosphates will see further rises coming, which will push TSP well over £400/t. Potash still looks a good buy against other straights and in comparison to historic levels.
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