Frontrunner - 15th October 2021

The United States Department of Agriculture (USDA) updated markets with the release of its October World Agricultural Supply and Demand Estimates (WASDE) report this week, presenting bullish data that further underpins the strong prevailing prices. Traders expected to see cuts for Canadian wheat output in line with updates from local analysts. Prolonged spells of heat and dryness have been significantly damaging to the Canadian crop and the USDA now sees the crop total down to 21 million tonnes. This is down two million tonnes on last month and 14 million tonnes down on last year. The US wheat production estimate was lowered by 1.4 million tonnes in line with yield adjustments published on 30^th September.

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WHEAT

USDA reinforces bullish fundamentals

However, multi-year revisions for Iran dating back to 2017, including a sizeable 3.6-million-tonne cut in the country's beginning stocks, came as a bullish surprise. Iran's wheat production estimate for this season was also cut by 1.5 million tonnes, which leaves the total estimate for Iran at 13.5 million tonnes and brings down the estimate for global wheat production by 4.5 million tonnes since last month. The world wheat production estimate now sits at 775.87 million tonnes.

World consumption is seen falling 2.6 million tonnes as a result of lower usage - particularly for India and Canada - leaving world stocks at 277.2 million tonnes. This is six million tonnes down on last month and over 11 million tonnes down on the year, leaving world stocks at their lowest since 2016/17.

World markets rallied subsequent to the report being published in spite of bearish data for world corn, which sees world stocks rising by the end of this season by four million tonnes on last month, bringing the total up almost 12 million tonnes on the year.

DEFRA lowballs UK crop number

There is a lack of detailed scientific analysis that can give reliable UK wheat production estimates. However, this week the Department for Environment, Food and Rural Affairs (DEFRA) gave a 2021 harvest estimate of 14.02 million tonnes based on traditional accounting methods. At 7.8t/ha, DEFRA's national wheat yield estimate is lower than many trade guesses. This lower-than-expected output coupled with increased demand signals a tight domestic supply and demand balance sheet. This means that UK prices do not need to fall to competitive levels in export markets to clear its surplus, as was previously thought.

A bioethanol plant in Hull is set to restart production in 2022 after closing its doors in 2018. This is in response to news of a government mandate passing. The mandate stipulates that the compulsory inclusion of ethanol blends in fossil fuels will rise from 5% to 10%. The mandate came into effect last month.

Increased domestic use will also come from the animal feed sector where wheat will regain some of the market share it lost last season to cheaper barley and imported maize.

London wheat futures also rose further this week, once again reaching new contract highs.

Mixed message on EU wheat

Alongside the cut in the USDA's world wheat production estimate in its latest WASDE report came data that revealed a 400,000-tonne increase on last month for the EU. In contrast, this week the French Ministry of Agriculture and Food cut its French wheat production estimate by 900,000 tonnes, estimating a new total of 35.24 million tonnes. According to France AgriMer, this will see French wheat stocks fall by 500,000 tonnes on the year, bringing the country's total wheat stocks down to 2.4 million tonnes. This will see France maintaining original expectations for its exports outside the EU; its exports are anticipated to reach 9.6 million tonnes. Despite quality issues for French wheat, rumours of further sales to China alongside expectations that shipments could top two million tonnes helped futures markets recover from a mid-week round of profit taking.

Meanwhile, planting for the French 2022 wheat harvest progressed to 13% complete. This is ahead of the 11% completion at this time last year.

BARLEY

Feed barley prices continue to strengthen

Spot demand from merchants' shorts and the pig sector have continued to push prices closer to wheat. Understandably, growers are concentrating on drilling so their focus is currently drawn away from selling.

However, feed barley exports past October are almost non-existent and importers would be unable to compete with our domestic prices even if they should wish to trade.

Once the pig sector adjusts to the UK's new capacity for processing pig meat, a smaller herd may well be seen. It is only the pig ration that has any interest in barley at these relatively small discounts to wheat. This tightness may have another month to run, but once December supplies are secured in the early months of 2022, it could become harder to sell feed barley.

Crop 21 malting barley prices and premiums over feed continue to increase

At values of £50-60/t over feed barley, English brewing malting barley prices are having their moment in the sun. On paper, the UK has a very healthy exportable surplus of around 550,000-600,000 tonnes to load. A maximum of approximately 200,000 tonnes of this surplus has been sold. It's clear that growers are still holding onto a fairly large unsold tonnage if the area and yield data are to be believed. The best prices are for post-Christmas as much of the nearby demand has been filled. Growers would be advised to reduce their level of unsold barley as the Southern Hemisphere crop from Australia and Argentina are in good shape with harvest now only 6-8 weeks away.

Harvest 2022 spring barley malting premiums very healthy

Premiums over feed varieties for malting types is around £50/t, which is one of the highest forward premiums for English brewing barley in recent memory. With the massive prices for nitrogen-based fertiliser and rising chemical costs, it's believed that the EU and English spring barley area will rise by at least another 5%. Malting barley prices and premiums have a habit of being quite volatile. Consider, for example, the low premiums of crop 2020 to the large premiums of crop 2021. It's worth making a small start with perhaps 15-20% of anticipated production. Please contact your local Frontier farm trader for details.

OILSEED RAPE

Reversal for UK prices

Rapeseed markets continue to trade nervously. They're caught between a global soybean market that is in steep decline and a European rapeseed supply situation that remains tight following the devastating drought in Canada.

At one point this week, domestic prices had plummeted by £30/t, although recently there have been signs of some recovery. Another feature that has come into the market is the re-establishment of a carry into the New Year. Previously, UK nearby prices were higher than the deferred months as the market anticipated a shortfall in supply prior to the arrival of cheaper Australian seed early in 2022. Prices in the New Year are currently higher than spot levels, indicating that crushers now have good levels of cover in place for the next couple of months.

Bearish USDA report

The apparent disconnect between rapeseed markets and the wider oilseeds complex has been an overbearing topic for some time, but signs of the markets starting to move in unison are beginning to appear. A bearish USDA WASDE report has pushed US soybean futures prices back down to levels not seen since the end of March. Helped by an increase in US bean yields, the report boosted production, lowered consumption and marginally reduced export volumes. As a result, it cited a year end stock level that was more than the trade expected. The US crop is now largely known and traders are only three months away from having access to cheaper Brazilian supplies.

China is a key unknown factor

Soybean markets are subsequently looking bearish and it remains to be seen whether European rapeseed can continue to go its own way. Crush margins remain good, particularly in the biofuel sector, and the pattern in recent months has been that any price setbacks have proved to be only temporary. However, it is also evident that while a high degree of certainty has been gained in many areas, the one big unknown remains how China will behave. The USDA report lowered China's soybean consumption in 2020/21 by 900,000 tonnes, which raised the country's year end stocks. Furthermore, crush volumes are anticipated to remain low into this season due to 'energy issues'. However, what is known about Chinese buying requirements and strategies is limited. China's activity will continue to be one of the major swing factors in the coming months.

PULSES

Increasing difficulty in achieving human consumption premiums

With ongoing issues regarding the movement of containers, it is now increasingly difficult to achieve human consumption premiums for spring beans, especially in the south of the UK as most containers go through the port of Felixstowe. Given congestion there, the port has currently stopped accepting new cargo. Further north, there is some movement but the issues of simply getting dry beans to the correct cleaning plants is becoming increasingly challenging.

Bean crop may struggle to find demand

Feed markets seem to have hit a level where UK consumers will not follow any increases in the wheat market. There are some spot shorts holding the market up, but it seems increasingly likely that the big increase in the bean crop this year may eventually struggle to find keen demand.

FERTILISER

AN/urea

Granular urea values continue to rise globally, driven by a ban on Chinese exports and fresh demand from South America. India is expected to issue another tender in the coming days as the country has only purchased 700,000 tonnes recently, which is approximately only 15% of its short-term requirement. This is lending more support to global prices.

The main granular urea supply route into Europe and the UK is now priced at over $920/t delivered portside in bulk, putting farm prices in excess of £700/t delivered in a bag.

The week started with another increase on 33.5% AN in Europe, pushing prices up in France by a total of €165/t since the 4th October. The cost of 33.5% AN in France is now €780/t.

The UK continues to lack supply of fresh domestic ammonium nitrate and quality imports are now getting tight.

Gas prices remain volatile in Europe and the UK and have increased by 473% over the 41p/therm of October 2020 to a high of £2.35/therm this October. Until some stability in daily gas prices is seen, it's unlikely that the ammonium nitrate production facilities that have shut down across mainland Europe in the past few weeks will recommence production.

Growers are advised to discuss plans and requirements with their Frontier contact as soon as possible, as any current offers are very limited.

UAN

The UK awaits UAN spring values from the major suppliers, with available volumes expected to be limited as the global nitrate markets remain extremely volatile.

Strong demand for UAN conversions remains as buyers look to cover their fertiliser requirements.

Phosphates moved up again this week, partly due to the export ban in place with China, but also due to the increased production costs of sulphuric acid, which is used to make phosphoric acid and in turn phosphate fertilisers. The cost of sulphuric acid has increased from an average value of $50/t to $200/t. Demand from India also continues to support the market.

Huge demand from Brazil is causing a tight supply situation for MOP, Potash Plus and polysulphate, which has resulted in prices continuing to firm this week.

Logistics remain an issue and aren't set to improve as the market heads into the traditionally busy pre-Christmas period.

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.