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Frontrunner - 15th January 2021

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WHEAT

  • USDA shocks markets

Few World Agricultural Supply and Demand Estimate (WASDE) reports from the United States Department of Agriculture (USDA) trigger a market reaction such as the reaction triggered by the report released earlier this week. A report with such futures volatility following a period of prolonged market price gains hasn't been seen since 2012/13.

Chicago Board of Trade (CBOT) corn and wheat futures rallied by almost 5% whilst both Paris and London wheat futures hit new contract highs for old and new crop markets. Sterling strength against the euro tempered the UK price rally to a degree, but May 2021 London wheat futures climbed to their highest level since January 2013.

Markets were expecting bullish data to support recent price gains, primarily from South American corn crop issues and increased demand for US supplies, and this was evident in the report. The Argentine corn crop was cut by 1.5 million tonnes down to a total of 47.5 million tonnes and the Brazilian estimate was cut by one million tonnes to 109 million tonnes from the previous report. However, cuts to the current season estimates for US corn yields from the previous estimates were a surprise to traders. The USDA reduced average yields from 175.8bu/ac to 172bu/ac, which cut the US corn crop by over eight million tonnes. Pre-report average trade yields estimates were at 175.3bu/ac. This loss of production will see US corn stocks drop four million tonnes from previous estimates and, at 39.42 million tonnes, US corn stocks are nine million tonnes down on the year; at their lowest level since the end of the 2013/14 season.

Last May, the first USDA estimates saw world corn stocks increasing to 373 million tonnes by the end of this season, leaving markets in a bearish state. However, subsequent crop losses in the US, Ukraine, Russia, the EU, and now potentially South America are significant, with world corn stocks currently seen dropping below 284 million tonnes; almost 90 million tonnes below those original USDA estimates.

Conversely, the USDA world wheat balance sheet changes were relatively small but, with consumption higher as a result of demand displacing lost corn, stocks were down three million tonnes. However, this is still 13 million tonnes up on the year.

  • Russia poised to extend export taxes

In an attempt to ensure sufficient wheat supplies remain available for their domestic market and that flour and wheat product prices do not continue to spiral higher, Russia was set to introduce a €25/t export tax which would apply to its 17.5 million tonne wheat export quota which runs from 15th February to 30th June. The tax has added weight to the rising world wheat prices we have seen since the end of last year and has therefore proved counterproductive. However, fanning the flames for markets this week were rumours that Russia may almost double the export tax to €45/t from 15th March and, from then, additionally tax both barley and corn exports.

At the time of writing, the outcome of these tax proposals was unclear. Any form of restriction will disrupt trade flows, push demand to other origins and have a bullish effect on world wheat prices.

  • Egypt declines wheat offers

Egypt, the world's primary wheat importer, received just four significantly inflated offers for its latest tender to purchase this week, ranging between $25/t and £45/t above the prices the country paid in its previous tender on 15th December 2020. The country's strategic supplies are reported to amount to five months of its domestic demand.


BARLEY

  • Rising world feed barley prices

World feed barley prices have risen again this week, following wheat and maize values upwards after a bullish mid-week report from the USDA. There are only two countries not facing significant price rises. Spain sustains values following a bumper barley harvest last summer, along with Australia, where Chinese tariffs on Australian barley continue to bite.

In the UK, the price of feed barley has risen by around £15/t since the turn of the new calendar year, with a flurry of buyers appearing this week. These buyers are both for domestic consumption, as winter feed demand really kicks in, and for export to mainland Europe, where tariff-free trade continues with the EU.

  • Usage by maltsters and distillers down

UK usage figures from the Agriculture and Horticulture Development Board (AHDB) were released this week for July to November. Usage by maltsters and distillers was down 12% on the same period last season. This is likely due to the continued effects of repeat lockdowns in the UK, which are limiting international travel and closing hospitality venues, resulting in falling beer and whisky sales. On a brighter note, feed barley usage in the UK was up 34% over the same period when compared to last season, which goes to show how much extra demand is generated when barley gets to a £50/t discount to feed wheat.

Malting barley markets are quiet since the return from the Christmas break, with uncertainty over demand going forward a concern across the brewing and distilling sectors. Malting premiums have come under pressure as a result of little new demand and rising feed barley values. Going forward to crop 2021, we still have a range of minimum/maximum premium contracts available for both spring and winter barley to protect growers against declining malting premiums. Please speak to your farm trader for details.


OILSEED RAPE

  • Firm old crop prices

UK domestic markets have moved up £15/t since 2021 trading began. The key to recent firmness has been a combination of sustained buying by the Chinese and growing concerns over the effect of drought conditions in South America. In recent times, China has viewed Brazil and Argentina as welcome alternatives to having to buy US soybeans, but a combination of shrinking crops and port strikes in that part of the world has forced China back to trading with the US. US soybean export volumes are running at a record pace and there is no sign of a let-up before the end of next month, when South American supplies are expected to relieve some of the strain.

  • US soybean stocks depleting fast

This week's WASDE report from the USDA has given global oilseeds markets a further push upwards. The trade felt that the report struggled to make sense of the pace of US exports, the robust domestic US crush numbers and the eroding affect that both of these have on year ending stocks. By being conservative, the report managed to get a stocks-to-use ratio of 3%, which is the lowest figure ever quoted in a January report. However, some traders think the ratio is nearer to 1%. This suggests the US will run out of beans before the next harvest unless prices rise sufficiently to ration demand.

  • The fight for spring acres

There is little confidence that the world can find enough spring acres to rebuild oilseeds stocks in 2021/22, meaning the situation may not be fixed in the short term. As ever, the key will be soybean production in the Northern Hemisphere, particularly within the US. The most significant figures in the USDA report were on corn, with both production and year ending stocks marked significantly lower. Corn and soybeans are direct competitors for spring acres in the US and price is the only weapon available to each side. It is estimated that for the US to return to a more comfortable soybean supply position in 2021/22, farmers will need to find an additional eight million acres to sow with beans this spring. Under these circumstances, oilseeds markets are likely to remain firm over the coming months.


 PULSES

  • A rise in old crop bean values

After a week of strong rises in wheat and oilseed markets, old crop bean values eventually started to rise, with £220/t ex-farm available in most regions for feed beans. However, despite the relatively competitive prices of beans compared to other compound feed raw materials such as soya meal and rapeseed meal, demand from consumers is limited. Stronger sterling values also make beans uncompetitive for further export business to Europe.

  • New crop bean values rise

New crop bean values continue to follow wheat and, with the recent price rises, £200/t is now achievable in many UK regions for feed beans, with a further opportunity to add a human consumption premium when quality is known.


 FERTILISER

  • Urea/nitrates

In the two weeks since returning after the Christmas break we have witnessed some sizeable increases in values across most nitrogen commodities. At the time of writing, urea has traded well over $300/t into Europe from Egyptian suppliers and the direction of travel remains firm. By the time shipping, bagging and haulage come into play, this means urea is trading on farm at two-year highs. High prices for urea and gas have seen UK producers and suppliers increase just over a third of offers by more than £15/t since before Christmas. A further price rise of up to £10/t for both urea and ammonium nitrate is expected over the coming week. This will also be reflected on nitrogen sulphur grades which are in very tight supply and will create pressure on delivery to meet application timings as, in many cases, it is the first product used on farm.

  • PKs

Potash prices have remained flat for some time. However, since December suppliers have been increasing prices due to the very strong global market and importantly, shipping costs, which have gone up around 35-40% since summer. New shipments coming into the UK are commanding a higher price and this will follow into the supply chain. Phosphates continue to rise in value, with DAP in particular now well over £100/t more than 12 months ago. These increases will also be factored into blends and we would expect further price increases in high nitrogen and DAP grades over the coming week.

With all this in mind, our advice remains to buy your requirements now and take advantage of what still remains to be a well priced market.


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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