Frontrunner - 11th March 2022

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WHEAT

  • Wheat markets break new records

The escalating conflict following Russia's invasion of Ukraine and subsequent fears for future wheat supplies from the Black Sea led to extreme volatility in the wheat market this week, resulting in new record highs for futures markets. Wheat futures rose to their highest on record this week, with Paris futures exceeding €400/t and London futures rising above £300/t, breaking the previous record set in 2008.

With Ukrainian ports effectively shut down and increasing sanctions for Russia, the world's major wheat importers are being forced to turn to alternative origins for wheat supplies, with the EU being of particular interest. Tunisia received offers above $500/t and ultimately cancelled its tender, but Algeria paid $485/t including freight and reportedly bought 600,000-700,000 tonnes of optional origin wheat. To ensure it maintains sufficient wheat supplies until harvest, Algeria had to pay $140/t more than the supplies the country secured in February. Traditional supplier France increased its soft wheat export estimate from 8.9 to 9.7 million tonnes and said there was room to increase by another 500,000 tonnes to one million tonnes if needed as a result of the Russia-Ukraine war.

  • USDA calms markets

The United States Department of Agriculture (USDA) updated its World Agricultural Supply and Demand Estimates (WASDE) report on Wednesday and the revised data served to provide a short period of calm for wheat futures. An increase in the Australian production estimate to a record 36.3 million tonnes contributed to an overall increase of 2.1 million tonnes in the estimate for world wheat production, which is now up to 778.52 million tonnes. With lower usage, world stocks are increased by 3.3 million tonnes to a new total of 281.51 million tonnes. The report considered, to some degree, the current supply issues from Russia and Ukraine, cutting season's estimates for the countries by three million tonnes and four million tonnes respectively. However, these cuts are compensated for by Australia, the production estimate for which is up two million tonnes to a total of 27.5 million tonnes and by India, which has a production estimate that has been increased by 1.5 million tonnes to a new total of 8.5 million tonnes. Overall, the USDA sees world wheat exports down by 3.5 million tonnes, with an anticipated total of 203.11 million tonnes. On paper, increased global stocks present a bearish set of statistics. In reality, the world is seeing record high wheat prices as a result of the loss of Russia and Ukraine as primary wheat exporters.

  • Potential trouble for Chinese wheat crop

China is the world's largest wheat-producing country and, this season, it harvested an estimated 137 million tonnes. The country's domestic wheat consumption exceeds its production by over ten million tonnes, leaving an import need of 9.5 million tonnes. This week, China's Ministry of Agriculture and Rural Affairs has stated that the country's wheat crop condition could be the worst in its history after heavy rain delayed autumn planting by up to a third. The USDA estimates that China holds over half the world's wheat stocks (142 million tonnes) and that it may need to consume a significant volume from this if production falls. The Chinese government is allocating $250 million to strengthen field management in winter wheat regions to control the impact of poor weather and stabilise production. Increasing imports to fill any deficit could prove challenging and would come at the worst possible time with disruption to Ukrainian and Russian supplies at present. The Minister of Agriculture of the Russian Federation said on Thursday that Russian food security is ensured and that Moscow would continue to service its export obligations for global agriculture markets. That may be a comfort to Chinese importers but is unlikely to improve prices.


BARLEY

  • Competition for old crop supply

The patterns for UK old crop feed barley have continued in a similar fashion this week with generally more buyers than sellers coming to the market. Old crop stocks left unsold on farm are now mainly in strong hands, especially in East Anglia where selling is very limited despite unprecedented high prices.

Both trade shorts and end user demand are competing for supplies to see them through to harvest. The ongoing situation in Ukraine has made new crop estimates unpredictable, but this week an announcement that barley exports from the country have been banned in the short to medium term has added to the bullish sentiment in the current barley market. In an average year, Ukraine would contribute around 18% of the world's barley exports.

  • High new crop feed barley prices generate market activity

New crop feed barley trade in the UK is seeing more activity as growers take advantage of prices which, while not as high as old crop values, are still well above average. A steady stream of end user buying interest has also been seen this week as consumers look for a little certainty in very uncertain times. New crop malting prices remain firm with few sellers present in the market. More activity may be seen when spring drilling gets underway in the UK.

Drier weather in the UK this week has meant a start of spring field work with nitrogen being applied to winter barley crops. With another few days of dry conditions forecast, drilling of spring crops on lighter land should also pick up pace. It is unlikely that drilling of barley will commence yet on heavier land as heavy rainfall in February has resulted in soils that need time to dry.

France recently reported that 76% of its planned spring barley area had been drilled as of 7th March. 


OILSEED RAPE

  • Old crop

The main focus of the oilseeds market currently is the ongoing conflict between Russia and Ukraine, with previously important factors fading from consideration in light of the situation. For example, this week the USDA's WASDE report significantly cut its estimates for the South American soybean crop. Usually, such a cut would be a great market mover, but in current circumstances, the reduction had little impact.

Old crop rapeseed has seen a sharp rise since the beginning of the conflict mainly due to the loss of sunflower seed and sunflower oil that was expected to come out of Ukraine in the coming months into European markets ahead of the new crop season. This loss of supply is causing crushers and oil users to try and switch to other edible oils; rapeseed being one of the alternatives. Prior to the conflict, Europe was already in a tight vegetable oil supply and demand situation. This has now been exacerbated by the conflict and the market needs to find a way to replace these oils. A solution could come in the form of biofuel mandates which would reduce the amount of vegetable oil required in biodiesels. This would reduce the demand for vegetable oils and alleviate some, but by no means not all, of the tightness the market is seeing.

  • New crop

The focus for new crop rapeseed values is similarly set upon the ongoing conflict in Eastern Europe. Ukraine historically supplies a large percentage of imported rapeseed into the UK and EU within the first six months of the year. Due to the conflict, this supply channel is currently in question. It is unknown whether Ukrainian farmers will be able to maintain and harvest the crop and whether crops that are harvested will be able to be exported from the country in any volume. Sunflower plantings, which traditionally take place in the spring, are also in question.

South American soybean crop estimates continue to decline with the USDA now estimating that Brazil will only produce 127 million tonnes; down from an estimate of approximately 140 million tonnes in January. This is adding further support to the vegetable oils complex.

The global supply and demand situation for vegetable oils and the wider oil complex remains extremely difficult to predict. Any poor weather would create an incredible challenging situation for the market in light of the existing issues.


 FERTILISER

  • AN/urea

This week has seen huge volatility for gas prices. Within the UK, gas prices started on Monday at £7.45/therm and fell to as low as £3.30/therm later in the week. This is still high when compared to the £1.80/therm of gas prices in September 2021. Such volatility leads the market to question how a manufacturer can possibly calculate its production costs.

Supplies of all nitrogen products are extremely limited, whether it be granular urea, ammonium nitrate (AN) or nitrogen sulphur grades. At the time of writing, there are offers in the market from Yara, CF Fertilisers and blenders, but tonnages are tight and very much subject to availability.

The last trade of urea on a freight on board basis ex Egypt was $1,050/t. This equates to £920/t before haulage to farm.

Some European producers have dropped their production by as much 40% as a result of high gas and ammonia prices.

  • Liquid/UAN

UAN markets continue to be based around price on application, with supplies continuing to be tight in a volatile market. Please speak to your Frontier contact if you still have product to buy.

  • PKs/straights

Supply issues have had a dramatic impact on prices for products imported into the UK. The replacement cost of MOP has gone up £90/t and the replacement cost of TSP by £190/t. DAP as a straight is not available due to blenders requiring all stocks for blending.

Russia is one of the biggest suppliers globally and is currently subject to export restrictions and sanctions, which means the market is likely to see further tightening. Frontier continues to advise growers to buy ahead.


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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