Frontrunner - 12th November 2021

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WHEAT

  • USDA trims world wheat stocks

The United States Department of Agriculture (USDA) published its November World Agricultural Supply and Demands Estimate (WASDE) report early this week, bringing an end to a short spell of declining prices. A revised estimate for world wheat stocks was released, which was below average trade estimates. The USDA cut world wheat stocks from 277.18 million tonnes to 275.80 million tonnes. This revision changed the negative market sentiment. The profit-taking that was seen from the middle of last week reverted to bullish enthusiasm.

Overall, changes for the wheat balance sheet were modest and few but worth noting. The USDA reflected increasing import needs and revised its exports estimate upwards to 203.16 million tonnes from a previous figure of 199.63 million tonnes. The increase in the exports total was aided by an additional one million tonnes exported from Russia, from 35 million tonnes to 36 million tonnes. However, this is in contrast to the figures released by Russian analyst group SovEcon, which has cut its own Russian wheat export estimate to 34 million tonnes to account for the impact of export taxes.

SovEcon noted more demand from the EU, increasing its European demand estimate from 35.5 million tonnes to 36.5 million tonnes. This is well ahead of other estimates and leaves an untenable ending stock which is too low to meet domestic demand strategic needs.

Meanwhile, the USDA cut its US export estimate by 400,000 tonnes to a new total of 23.41 million tonnes, leaving stocks of 15.87 million tonnes, which is only half of US domestic demand. This suggests that the EU will need to price itself beyond export competitiveness to maintain sufficient stocks and that the US has an opportunity to compete for increased export market share.

According to the latest WASDE report, world stocks will be more than 12 million tonnes down on the year­­ - a bullish statistic. However, the USDA world corn balance sheet compensated for wheat losses with stock gains of 2.7 million tonnes coming in as a result of production increases exceeding demand increases. The US corn crop yield estimate has increased by 0.5bu/ac, leaving the new estimate at 177bu/ac. This increase would take total projected US corn yield to 382.59 million tonnes; an increase of 1.1 million tonnes overall.

The EU crop estimate was increased by 1.5 million tonnes to a new total yield estimate of 67.85 million tonnes. This is in response to favourable French yields and improving Argentinian production prospects following timely rain, which increased the country's crop estimate by 1.5 million tonnes to a new total of 54.5 million tonnes.

Despite disruptive rain and snow, the USDA's production estimate for China remains unchanged at 273 million tonnes. This is two million tonnes ahead of official Chinese estimates. Currently, China holds 210.68 million tonnes of the world's total 304.43-million-tonne stock.

  • Russia ignites wheat markets

Mid-week comments from the Russian Minister of Agriculture triggered a sharp rally for wheat prices and sent Paris futures briefly above €300/t, which surpassed the previous record high set in 2008.

The minister said that if major price growth continues, Russia might change the formula it uses to calculate grain export taxes. The tax was introduced to help stabilise domestic inflation which is at its highest in the last five years. There will also be a quota set from the 15th February 2022 to ensure the country maintains sufficient domestic supplies. This will remain in place until the 15th June 2022.

Further supply restrictions for the world's leading wheat exporter would push additional export demand to the EU and Ukraine where the current pace is already not sustainable. It will also push export demand to the US; as a result, sharp price rises have already been seen.

  • UK balance sheet differences

The USDA has also made changes to its UK balance sheet, releasing figures that highlight the notable differences between USDA estimates and those from the Department for Environment, Food and Rural Affairs (Defra) and the Agriculture and Horticulture Development Board (AHDB). While the USDA cut its 2021 UK wheat production estimate from 15 million tonnes to 14.3 million tonnes, the official Defra estimate is only 14.022 million tonnes.

The USDA also cut its estimate for UK wheat usage, with animal feed demand 200,000 tonnes lower than estimated the previous month. However, this estimate is still 1.5 million tonnes higher than last season, which saw compounders switching to notably cheaper barley supplies.

At 15.3 million tonnes, the USDA's demand estimates remain well ahead of the AHDB's early balance sheet estimates of 14.745 tonnes. The USDA's estimate signals an import requirement of two million tonnes compared to 1.7 million tonnes if the AHDB's figures are correct. These differences between the USDA and Defra/AHDB estimates for each aspect of UK supply and demand illustrates the challenge in providing the market with a reliable global balance sheet.


BARLEY

  • Feed barley values keep pace with wheat

Feed barley values have increased but some areas are now trading like "islands", because the ability to move grain from lower priced parts of the county to higher priced areas is limited. There has been a small amount of export interest from the cheaper parts of the UK, especially where sellers need to move the barley they have bought. Buyers into the Dutch market have struggled to get their supplies from the EU hinterland due to low water levels on the Rhine and have subsequently opted for the seaport option. This is in the hope of resolving the problem, of which the UK is the cheapest.

  • UK pig heard to shrink

Market talk is suggesting that between 35-45,000 sows are in the process of being culled. This is due to rising feed cost and lack of processing capacity which is reducing sales income, and therefore margins for pig producers. This is taking time and gives extra spot demand for feed barley while the process goes on. Once complete, feed barley could face much more limited domestic demand for the rest of the season. This seems to be a UK-specific issue at present.

  • Malting premiums remain high on old crop. New crop values start high.

The old crop malting barley market is still very firm, in part due to logistical issues and cost. However, it's also due to brewers' beer sales going according to plan and subsequently drawing on maltsters for more malt. Traditionally, malt demand is largely covered for the grain marketing year by early January in the EU. Therefore, it's encouraged that growers should market most of their unsold supplies by then.

New crop prices are in theory £45/t lower. On this new crop, subject values for the autumn months vary from around £210/t ex farm in the south and west, to £200/t ex farm in the east for standard brewing grades and varieties. Growers should take this into consideration as the prices of fertiliser will favour the growing of spring barley for the brewing and distilling industry. Contracts for crop 2022 are available from your Frontier farm trader for fixed prices. There are minimum and maximum premium contracts and our pool is also available for those who are not sure what volumes and quality they may produce.


OILSEED RAPE

  • Farm prices hit £600/t

With Paris rapeseed prices finding new contract highs at over €700/t and UK farmers that are close to crushing facilities making £600/t plus bonuses for their old crop stocks, we continue to witness a market that simply refuses to run out of steam. A near £15/t drop in prices at the start of the month has been rapidly reversed by a combination of Chinese factors, potential demand from the energy sector, surging inflation rates and a bullish WASDE report from the USDA.

  • Chinese conundrum

Chinese demand is a difficult market factor to weigh up. Normally, low import volumes would be a bearish factor, but traders appear to be braced for a rapid catch up in buying by China at some stage. By the end of the third quarter, China had only bought 60% of the $200 billion of US goods it had committed to under the Phase One agreement. This suggests that a rapid escalation in buying volumes might be imminent. Support has also been found from the renewable energy mandates in the US as well confirmation this week that US inflation has hit a 30-year high at 6.2% which will drive more money into holdings of commodities.

  • Bullish USDA report

The big turning point this week was the release of the USDA report on Tuesday. The report left global rapeseed production virtually unchanged at 67.5 million tonnes, compared to 72.7 million tonnes last year. However, the major surprise was the reduction in US soybean yields, especially when the trade was anticipating an increase. 0.63 million tonnes was cut from the production estimate, bringing the total estimate down to 120.43 million tonnes. The report also reduced Argentinian bean production by 1.5 million tonnes to a total of 49.5 million tonnes. Lately, world rapeseed prices appear to have been more aligned to palm oil, rather than soybean markets. However, markets this week reinforced that soybeans are the leader in the wider oilseeds complex, and if bean prices rise sharply then everything else will follow.


 PULSES

  • Global Pulses Confederation host conference to discuss European market

Pulses manager, Andy Bury, will be joining a conference hosted by Global Pulses Confederation on Monday 15th November to discuss the UK pulses market. If you'd like to gain an understanding of the UK pulses market and the role it plays in the European pulse market, you can add the event to your calendar by clicking here or you can register here.


 FERTILISER

  • Nitrogen

A record urea price was reached this week at $1000/t bulk ship, ex port. This exceeds the highs last seen in 2008, when speculative investors got involved in the markets. Today, the market is influenced by high production costs, coupled with continued strong global demand. India is in the process of another tender after only buying 460,000 tonnes in the last round and being very short of product. It's suggested India still needs approximately two million tonnes of urea. Therefore, it wouldn't be a surprise if on this round India covers more than one million tonnes. However, the average price is expected to be over $1000/t bulk ship delivered, over one billion dollars in total. Pressure will remain on an already limited supply chain, as other global regions now also need to buy.

Ammonium nitrate markets across Europe also took another knock this week, as Russia announced a massive reduction 'quota' in fertiliser exports from the 1st December, adding more pressure to supply lines.

The UK benefitted from a domestic AN price which was withdrawn last Friday. New terms have been issued today at £15/t more than the last offer but now for January delivery. It's advised that growers take up this offer, as it looks to be the best AN option. However, tonnage is limited. Please call your Frontier contact for more information.

  • UAN

Limited volumes of UAN will be made available in the coming days. Growers looking at spring volumes are urged to look at their overall requirements and planned offtakes, as suppliers are looking very closely at shipping quantities required for this position.

Suppliers and merchants will want to run a very tight book, therefore volumes required for the spring may not be released all in one hit. Grades of UAN that are made available could vary depending on sulphur sources used in the manufacturing process.

  • PKs

Phosphate markets are very firm because of limited supply. Large buying nations, including India, didn't receive any offers on recent enquiries and have had to extend the window. The Russian export quota in place from 1st December is causing supply issues for the UK and Europe on DAP. Overall, phosphates look to remain firm well into 2022. Current demand is low in the UK but, as with TSP and DAP, MOP and related products also continue to firm.

Haulage difficulties consistently affect daily and monthly deliveries, with the situation likely to get worse as we move into the spring. It's advisable to book early to ensure product on farm for usage.



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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