Frontrunner - 12th July 2019

WHEAT

• Expectations for a reduced Russian wheat crop gather momentum

Upbeat crop estimates made earlier this year by many analysts estimated that the global wheat power-house, Russia would produce up to 85 million tonnes of wheat this coming harvest, adding bearish weight to markets. However, prolonged dry weather and heat during the spring and early summer has evidently damaged yield potential and now we are seeing a succession of cuts made to output forecasts. Earlier this week the leading agricultural consultancy, SovEcon lowered its estimate to 76.6 million tonnes. Importantly, it also lowered its wheat export forecast to 33 million tonnes. That is 2 million tonnes below the amount achieved in the 2018/19 season. The Russian Agriculture Ministry indicate a lower wheat crop at 75 million tonnes but exports higher at 36 million tonnes. Early cut wheat yield data is currently showing 1% lower yield than last year. This is a four year low, which suggests a wheat crop below 73 million tonnes. However, protein quality is reported to be extremely high with samples seen up to 16%.

• Heat damages EU wheat yields

Leading European analysts, Strategie Grains this week took account of the record high June temperatures experienced by much of Western Europe during grain fill. They cut their EU-28 wheat crop estimate by 2.2 million tonnes from their previous month's report, down to 140.6 million tonnes. This is still notably higher than the previous season's drought affected 127.1 million tonnes. In contrast, some early harvested French wheat yields on the west coast were said to be exceptional, 1 - 2 tonnes per hectare higher than normal. This has diluted proteins with tests below 11%, too low for milling wheat export markets. Elsewhere French yields were seen as mixed.

• Bullish USDA

Late yesterday (Thursday) the United States Department of Agriculture (USDA) published their latest monthly World Supply and Demand report providing a bullish tonic for wheat markets. Taking account of various crop issues since their previous report the USDA cut their wheat production estimates for Russia (by 3.8 million tonnes), Ukraine (by 1 million tonnes), EU-28 (by 2.5 million tonnes) and Australia (by 1 million tonnes). The US estimates increased by 500,000 tonnes but overall world production was lowered by 9.4 million tonnes to 771.46 million tonnes and year end stocks by 8 million tonnes to 286.46 million tonnes. UK wheat futures rallied £2 per tonne following the report. The markets will now need to wait until the USDA August report for the updated corn situation in the US, which should give an accurate figure for US corn acres planted.

BARLEY

• Harvest starts on a promising note

A dry start to the week in the south has resulted in more winter feed and malting barley being harvested, and we anticipate the barley harvest to gather momentum into the weekend. Yield reports from a number of areas are very encouraging, with some growers having yields up to a third higher from last season. With wheat crops showing plenty of potential, we expect the UK farmer to sell barley and hold off on selling wheat. This strategy makes perfect sense; the barley market could be affected more compared to wheat in the event of a hard Brexit at the end of October. It is still early days on winter malting barley, but quality at this stage looks very promising. The Agriculture and Horticulture Development Board (AHDB) published the results to their planting survey, stating that the 2019 winter barley area was 11% greater than that in 2018. However, the spring barley area was down 4%, with the majority of this decline in Scotland.

• Europe looking good so far

In the EU, winter barley yields are above the five year average and French autumn sown spring barley is now starting to be harvested, with reports highlighting low protein levels and good yields. As a result, French and Danish malting barley values are coming under pressure. The feed barley base is seen as fragile due to reduced demand from North Africa given their excellent growing season and less demand from China because of the African swine fever epidemic, which is ravaging Asia's pig industry.

• Barley market

There's some early interest for exports which should benefit growers. Particularly with the continued uncertainty of Brexit hanging over the market and an anticipated bumper crop of spring malting barley, domestic maltsters are happy to sit back as premiums come under pressure. However, there is trade into the southern ports for spring barley until the end of October growers are advised to sell into this demand once they know what they have.

​OILSEED RAPE

• Prices rise

Oilseed prices moved higher this week as markets reacted to the disappointing early results from harvest in the EU. Early cuts in south east Europe and France are showing lower yields than last year. This week Agritel forecast that the French oilseed rape crop would be 3.6mmt down 200,000mmt from June on the back of a lower planted area. This equates to a 27% drop on 18/19 production.

• Market update

The market is in buoyant mood and whilst the early cuts in Europe have been disappointing there is continued chatter about lower oil content as some speculate that the long hot June has caused some damage to seed in certain regions.

Harvest in Ukraine continues to move at a swift pace and the first boats bound for northern European ports are loading.

Strategie Grains estimate EU imports for 19/20 at 5.8mmt; a 38% jump on 18/19. With weather improving in Canada and Australia the market is expecting a heavy programme of imports from these countries in the coming months.

• USDA report

In the United States Department of Agriculture (USDA) latest report US soybean yields have been cut by 5 bushels per acre and ending stocks accordingly, which the market predicted. But with soybeans the conundrum is demand. In China, African swine fever has substantially reducing the pig herd. While the Chinese Agriculture Ministry estimate a 24% reduction, some reports estimate up to 50% loss. Meanwhile, huge stocks in South America and the US loom over the market and therefore soybeans need to find demand. If the price difference between soybeans and rapeseed continues to widen then we would expect some European crushing plants to switch crop.

 PULSES

• Good weather conditions for beans

The bean crop continues to benefit from the warm showery weather in all regions of the UK. The final tonnage is not secure and we expect the UK bean harvest to be over 550,000 tonnes this year, up 25% from the previous year. Given the growing confidence in the crop size we are seeing more farms selling as values for feed beans remain over £200 per tonne, with premiums of £35.00 - £40.00per tonne available for human consumption.

• Market update

The next market moves will depend on harvested quality and quantity both here and in the Baltic States. Australia has recently welcomed much needed rain and the winter planted bean crop is now looking more assured. On the demand side Egypt is long of old crop beans and with falling values many buyers are not taking delivery of their purchases, adding extra pressure to the market. In Sudan, a traditional home for UK beans, from November to February all trade has ceased due to the political and financial unrest.

• Harvest

With harvest only four to five weeks away we expect to see a lot of price volatility as we assess the quality and quantity of this year's bean harvest.

 FERTILISER

• Nitrogen

Solid nitrogen markets remain quiet this week as the focus turns to liquid prices for tank fill. In Europe YARA again moved up the price of 33.5% by another 6 Euros, CF is unlikely to follow this rise immediately. However, the gap between Europe and the UK is widening so an increase could soon be on the cards.

Sulphur fertilisers remain the topic of conversation as cropping is decided and product selection is being made from the many grades available - please call to discuss your requirements.

• Urea

Global urea markets are active due to the recent tender from India that ended in a purchase of approx 1.7 million tonnes for July / Aug shipment and a continuation of buying from South America and other large regions. All this activity is supporting prices globally. Exchange rates (£/US$) are not helping prices into the UK. Urea buyers should stay in close contact with their fertiliser advisor.

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