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Frontrunner - 12th February 2021

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WHEAT

  • USDA triggers sell off

The United States Department of Agriculture (USDA) published its February World Agricultural Supply and Demand Estimates (WASDE) report on Tuesday this week, which many traders expected to present a very bullish picture for world grains, particularly corn.

Last week's record US corn sales to China coupled with adverse South American weather over the past month, which has impacted on corn production prospects for Argentina and Brazil, encouraged further buying. Prior to the publication of the WASDE report, these circumstances had taken US Chicago Board of Trade (CBOT) corn futures to new contract highs; the highest for 7.5 years.

However, the USDA presented data which failed to meet the bullish trader expectations and triggered a spell of notable long liquidation in corn and wheat futures markets. It is estimated the speculative funds sold 55,000 CBOT corn contracts, representing 15% of their long position and values 10% below their Tuesday high.

In the report, the USDA made no cuts to corn production estimates for Brazil or Argentina despite domestic analysts predicting lower output. The USDA increased South African production estimates by 500,000 tonnes, which took world corn production up 16,000 tonnes on the previous report to a new total of 1.134 billion tonnes.

Although traders expected an increase in world consumption figures due to increased demand from China, consumption dropped by 2.5 million tonnes to a new total of 1.150 billion tonnes. The WASDE report increased China import predictions from 17.5 to 24 million tonnes but put 4.5 million tonnes of that into stocks. This raises a puzzling question: Why would China buy an extra 6.5 million tonnes of imported corn at a 7.5-year market high simply to store it?

Meanwhile, trade estimates for world stocks were as low as 270 million tonnes but the USDA increased world stocks by 2.7 million tonnes to 286.53 million tonnes.

The USDA wheat balance sheet was largely ignored in the report. Consumption increased by ten million tonnes which left stocks nine million tonnes lower at 304.22 million tonnes, but this was shared across China and India and not deemed relevant.

  • China corn stocks in question

As mentioned earlier, the WASDE report highlighted increased imports and increased Chinese corn stocks. The USDA sees China holding 196.18 million tonnes, which represents over 68% of total world stocks. It also seems quite odd that China would import 24 million tonnes of corn with prices soaring when the country reportedly has such high stocks. According to the Food and Agriculture Organisation of the United Nations, Chinese corn stocks sit at 139 million tonnes. The organisation cut a massive 54 million tonnes from its December estimates last week.

  • EU wheat exports gather pace

EU weekly wheat exports, including adjustments, were a notable 800,000 tonnes last week, which takes the total shipped to 15.8 million tonnes; a pace which is not sustainable to allow sufficient commercial season end stocks. This week, analyst Stratégie Grains increased its 2020-21 EU-27 wheat export estimate to 27.9 million tonnes and this leaves its end stocks estimates at just 8.3 million tonnes. This represents just 4.5 weeks' wheat supply as of the end of June, which seems an incredibly tight timeline and likely untenable if harvest is late.

Stratégie Grains takes an interesting look at the 2021-22 season, with a lower exportable surplus estimate than this season at 26.9 million tonnes; even with production over ten million tonnes higher at 129.6 million tonnes. With Russian export taxes set to be in play and European wheat freely accessible for the world's major importers, this could present a bullish picture for EU and UK wheat.


BARLEY

  • Demand in mainland Europe present but low

It's been a much quieter week on the feed barley market across the UK this week. Values have fallen alongside the sell off of various other commodities. Lower bids to the east coast ports in February through to April suggest there is further underlying demand into mainland Europe but not at the levels we have been used to in the last few weeks. Traders are also looking to fill in existing export sales in the nearby position, which does keep the nearby demand coming. Volumes sold by growers this week are well down on what we have seen recently as the lower values become the norm.

  • Domestic feed barley market at a still

The domestic feed barley market in the UK has also paused for breath this week. Consumers, for now, appear happy with spot cover and only appear in the market for small amounts as required. Lower bids for early summer delivery are few and far between. Domestic feed barley usage does usually drop away from April onward; whether this will happen this year with feed barley still at a significant discount to feed wheat remains to be seen. The big question in the UK barley market at the moment is whether we will have exported enough of the surplus by late spring to keep the domestic market firm or whether the surplus will eventually weigh on values.

The UK malting barley market is drifting along with uncertain demand. Some markets do occur but for limited volumes as the trade replaces failed parcels. New business by maltsters, when it does occur, is mainly focused on new crop where increased demand is hoped for from the summer onward.


OILSEED RAPE

  • Domestic markets stable

There has been little change in domestic rapeseed prices over the past week despite Tuesday's WASDE report, which sent US soybean markets tumbling by over 3%. Traders had thought that previous USDA reports had overestimated South American soybean production and US stocks while under estimating the projections for US bean exports. Tuesday's WASDE report was eagerly anticipated to see how these issues would be addressed.

  • Underwhelming USDA report

In reality, the report was somewhat underwhelming. It left soybean production in Brazil and Argentina unchanged and lowered US ending stocks slightly to 120 million bushels, which is considered to be the absolute minimum to get through to next season and the lowest figure ever for its February report. This lowering of the stock figure enabled the USDA to marginally revise up the US export total for 2020/21. However, US export commitments are currently at 96% of this revised figure, with seven months of the current campaign left to go; therefore, it's difficult to see how this is going to work in practice.

  • Exports slow to switch from US to Brazil

There is a feeling amongst traders that the USDA is simply 'kicking the can down the road' and at some point it will need to face up to the reality that South American crop numbers are likely to shrink and that US export volumes cannot be switched away to other sources quickly enough to secure the required US year ending stock levels. More rain in central and northern Brazil is delaying harvest further and out of 13 million tonnes of soybean export commitments for this month, there are currently only 500,000 tonnes loaded so far through Brazilian ports.

  • Fundamentals remain tight

There is no doubt that global oilseeds markets have reacted negatively to Tuesday's report, although European rapeseed markets are now showing signs of becoming more detached from the global picture. Trade is likely to be slow over the next week with a US holiday on Monday, the carnival season getting going in Brazil and the seven-day Chinese New Year holiday which started yesterday. During the festivities, China is expected to be largely absent from markets, which could allow prices to drift further. However, the underlying problem with stocks hasn't gone away and prices will need to remain firm to ration demand in the short-term and buy acres to secure a better supply position in 2021/22.


 PULSES

  • UK feed beans values resilient

Despite the UK's lack of competitiveness in the global bean market this year, feed values continue to firm. Ex farm values are now starting to creep up into the region of £220/t. Whether there is much more space for bean prices to rise will be determined mainly by domestic feeding demand.

A factor affecting both pea and bean movements globally is the current hectic container market. With shipments from all corners of the world facing huge delays and costs, it is becoming harder for this trade to work. This could lead to different shipment methods and/or increased prices.

  • Pea trade steady

Quality domestic pea markets are sluggish, but Asian customers have seen a rise in demand, mainly due to more advanced progress in handling the Covid-19 pandemic in Asia.

Feed peas remain uncompetitive against beans and look unlikely to factor in feed rations for rest of the year.


 FERTILISER

  • Nitrates/urea

It has been a much slower week for nitrates and urea, mainly due to the weather in the UK. However, it has not been a quiet week for buyers and users of ammonia. The market continued to firm, pushing nitrates, urea and phosphates higher. Nitrogen prices in the UK have remained static since last week, but NPKs have firmed. UK supplies remain tight due to tight supply and demand and higher European prices, forcing EU producers to look at supplying their domestic markets rather than shipping to the UK. More price increases are expected over the coming weeks as demand increases once the weather improves and applications get underway.

  • PKs

Issues with supply of DAP and TSP have again caused unprecedented increases this week, with both DAP and TSP values climbing over £30/t. Some suppliers have removed these products from their price lists due to concerns on availability. DAP is a major raw material in the UK used to make many spring compounds, resulting in new finished blend price rises again this week. We would continue to advise growers to look at their requirements and order as soon as possible.


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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