LISTEN TO FRONTRUNNER
Frontrunner is also available as a podcast, so you can hear the latest from our traders while you're on the go. Listen below or subscribe to the report on Acast, Spotify, Apple Podcasts and Google Podcasts. The report this week is read by marketing assistant, Faye Lee.
- USDA's first look at 2021-22
The United States Department of Agriculture (USDA) published its May World Agricultural Supply and Demand Estimates (WASDE) report this week, updating its current season balance sheets and its first estimates for next season. The markets were particularly keen to see how the USDA would assess corn production prospects for Brazil.
Late drilled crops are now suffering from an almost complete lack of rain, low soil moistures and rising temperatures. Despite the planting difficulties and obvious adverse weather, the USDA has previously failed to make changes to its crop estimate. However, this time it has made a notable cut of seven million tonnes, now reducing its wheat crop estimate to 102 million tonnes.
Some believe that without rain in the near future, the Brazilian crop could fall to between 85 and 90 million tonnes, asserting that the USDA hasn't sufficiently reduced its estimate. On the other hand, this week the government agency CONAB (Companhia Nacional de Abastecimento) reduced its corn crop estimate to 106.4 million tonnes.
Brazilian corn crop losses have increased demand for US corn. The USDA sees Brazilian end stocks 2.4 million tonnes lower on the month and now a significant 17 million tonnes down on the year, with stocks estimated at 31.93 million tonnes.
World production is down 8.5 million tonnes on the month to 1.128 billion tonnes. However, a cut in use of seven million tonnes leaves stocks just 300,000 tonnes lower on the month at 283.53 million tonnes. This is 21 million tonnes down on the year.
For 2021-22, world corn production is seen jumping 61 million tonnes to 1.189 billion tonnes. The US corn crop is seen 20.5 million tonnes higher on the year at 380.76 million tonnes due to record-breaking yields. Brazilian production is up 16 million tonnes to 118 million tonnes and Chinese production is up eight million tonnes to 268 million tonnes.
World demand is estimated to increase by 32 million tonnes to 1.181 billion tonnes and imports by China to increase by 26 million tonnes, which would be the same volume as this season's imports, even though the Chinese crop is up by eight million tonnes.
World stocks are estimated to rise by nine million tonnes to 292.3 million tonnes, but this relies on huge production numbers being achieved.
The WASDE report was uneventful in terms of predictions for 2020-21 world wheat with only minor adjustments to previous estimates, with stocks being seen 900,000 tonnes lower than in April.
The USDA sees 2021-22 wheat world production rising by almost 13 million tonnes to 788.98 million tonnes although this predicted potential is built on some questionable data. Domestic analysts see the Russian wheat crop as low as 79 million tonnes, but the USDA estimate is up to 85 million tonnes. The USDA production estimate for the Ukraine also seems high at 29 million tonnes when compared to estimates from local analysts which are at 28.6 million tonnes. Even this lower estimate would be a record if achieved.
World demand is seen increasing by eight million tonnes with only 1.5 million tonnes given to feed. Given high world corn prices trading at premiums to milling wheat, it is reasonable to expect wheat use in feed rations to rapidly increase. World stocks at the end of 2021-22 are predicted to be just 300,000 tonnes up on the year. However, with the possibility of an overestimate on production and an underestimate on demand, the accuracy of this prediction remains to be seen.
The USDA report seemed the catalyst for corn and wheat futures making sharp losses on Thursday. US, Paris and London futures all hit their lowest point since the 22nd April.
- US drilling pace increases
Dryness is a concern for the primary US spring crop growing states, but with no rain causing delays, spring planting advanced at a fast pace last week.
The corn area drilled jumped 21 points to 67% complete, which is well ahead of the 52% average for this time of year and supports views that US farmers could plant more than the USDA estimated at the end of March. Spring wheat planting also jumped 21 points to 70% complete compared to the 51% average for this time of year. The winter wheat condition improved one point to 49% now rated 'good' to 'excellent'. This is slightly behind last year's figure of 53%. Beneficial rain is forecast for the primary winter wheat producing states Kansas and Oklahoma whilst the northern US spring wheat states and Canada remain worryingly dry with temperatures rising above normal.
- No changes for 2021 EU wheat
Analyst group Stratégie Grains updated its monthly EU wheat balance sheet this week but made minimal changes. It sees the European Union producing 129.6 million tonnes of wheat from the 2021 harvest, up 10.2 million tonnes on the year. This is primarily due to a rebound in French production, which Stratégie Grains estimate will be up seven million tonnes to 36.1 million tonnes total. French weekly wheat crop condition ratings stabilised this week, having previously worsened during April due to a lack of rain and record low temperatures. 79% of the crop is rated 'good' to 'excellent', which is well ahead of the 55% that achieved this rating this time last year.
Stratégie Grains have the most optimistic estimate for 2021 UK wheat production at 14.8 million tonnes. Recent rain makes achieving the yield estimate of 8.1 tonnes per hectare more likely. This signals a notable surplus and, if realised, suggests UK prices would need to reduce against other origins to compete in export markets following this season where wheat prices have been based on import costs.
- Old crop feed barley ending with tight stocks
Delayed grass and cereal crop growth combined with further demand from the livestock sector has meant feed barley prices are ending on a high note. The discount to wheat has narrowed significantly over the last month or so and now stands between £25-29/t depending on location. Good early export pace as a result of the Brexit threat has certainly helped clear stock and the cold April has meant harvest looks more likely to be a week or so later than the market average.
- New crop barley fluctuates with futures markets
This week has seen barley prices rising and falling in line with wheat futures markets. Discounts to wheat are modest at £17-22/t depending on location. In general, barley prices are lower week on week. The main beneficiary of the recent rainfall and higher night-time temperatures has been barley growth; especially spring barley, which was in need of rain. There seems to be good demand for export cargoes but with prices currently lower than available in the domestic market, the balance will need to align come harvest.
- New crop malting barley markets quiet
Maltsters and brewers have kept a low profile over the last week as they observe the excitement in the feed grains complex. Growing conditions seem positive, but feed base prices could go either way depending on the corn crop performance of North and South America and whether results meet market expectations.
Malting premiums are currently not high but with socialising due to resume in Europe and further afield in the next month or so, the time has come to buy. Cover remains limited at present due to pre-existing concerns related to Covid-19 and its effect on malt and barley demand.
- USDA report leaves old crop supplies tight
Traders have spent the last few days eagerly awaiting the release of the May edition of the USDA's WASDE report. This month's edition is key as it not only updates the numbers for 2020/21 but also has a first look at the balance sheets for new crop markets. Wednesday's report was more interesting than explosive for the oilseeds market. There was little change on old crop soybean figures with US crush and biofuel demand thought to be underestimated and a stated US ending stocks-to-use of just 3.2% which would set a new record low. None of this came as a surprise. Markets know that the remainder of the old crop campaign is going to be tight and this is already reflected in prices. The new crop projections in the report were of much greater interest.
- World soybean production seen up in 2021/22
The impression left by the USDA's 2021-22 report is largely that production estimates seem high, particularly for South America where estimates for Brazilian and Argentinian soybean crops were increased to eight and 4.5 million tonnes respectively, despite crops five months away from being planted.
Overall, the report increased global soybean production estimates by 23 million tonnes. On the other hand, estimates for next season's Chinese imports seemed a little on the low side. Taking all these factors into account, markets reacted negatively with both US soybean futures and Paris rapeseed futures losing 2% of their value since the report was published. With prices recently hitting eight-year highs, the inevitable question is whether this is the end of the bull run. It seems possible, yet next year's forecasted production figures seem to assume almost perfect growing conditions in the major exporting countries, which seems a questionable premise upon which to base predictions.
- Rising demand for biofuels in the US
Interestingly, the report points to a rise in demand for biofuels in the US. The USDA is predicting that 47% of US bean oil in 2021/22 will be used for energy, which is a sharp increase from the current level of 34%. Corn and ethanol were a game changer ten years ago and, with the construction of more than a dozen major biofuel plants planned for the US in the next three years, there is likely to be a significant jump in domestic demand for US soybeans coming through. If more acres can't be found, this will mean lower exports which, in turn, will force the Chinese to look elsewhere for its supplies.
- Rising values in old crop bean markets
Another week of turbulent markets has had little impact on old crop bean markets. As farm supplies dry up and with a few buyers still needing to cover old contracts, values have risen £3-5/t over the week. There is still no interest for human consumption beans due to the uncertainty of container freight costs and the large surplus of Australian beans still in the Egyptian market.
- Improved growing conditions assures better new crop supply
New crop bean prices continue to follow wheat but there are very few trades to report. The much-improved growing conditions nationwide will produce a more assured supply and result in further downward pressure on the premium value of beans compared to wheat.
Weather has continued to remain wet across large parts of the UK with a little more warmth to help crops utilise that much needed fertiliser. UK supplier prices remain firm with values increasing by £10/t since last week. Imported ammonium nitrate product is in tight supply so a correction in values remains some way off. Global urea values have firmed by $20/t in the past week with tonnages being bought as part of a large consignment from India. Strong demand remains in that part of the world as well as strong demand from both North and South America and it may be some time before we see any weakening in urea pricing.
There are no notable market changes from last week's Frontrunner report for PKs, with both phosphates and potash products remaining firm. Forecasts suggest no reductions in pricing for the immediate future and it may be worth considering making future purchases, such as DAP for oilseed rape establishment, sooner rather than later.
Get in touch