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- Minimal changes from the USDA
Late last Friday, the United States Department of Agriculture (USDA) published its June World Agricultural Supply and Demand Estimates (WASDE) report but it made few changes to the previous month's wheat and corn world balance sheets. However, markets rallied from the low levels of trading before the report, where traders had squared long positions in case of bearish data.
World 2022-23 wheat production was trimmed by 800,000 tonnes to a total of 773.43 million tonnes. Consumption was cut by 1.5 million tonnes, leaving year end stocks just 17,000 tonnes below last month at a total of 266.85 million tonnes. However, this figure is 12.5 million tonnes below this season's ending stocks. Behind the headline numbers there are some individual producer estimates that are significantly different to local analysts. The USDA sees Russia producing 81 million tonnes of wheat (excluding Crimea), but other recent estimates are up to 87 million tonnes - a record if realised.
However, this is offset by an over optimistic view for India where the USDA sees a crop of 106 million tonnes, other analysts see the country producing below 100 million tonnes. The world corn balance sheet saw only one notable change which was for Ukraine, where production is seen 5.5 million tonnes higher than previous estimates at a total of 25 million tonnes. This takes world production up to 1.186 billion tonnes. This will be a drop of 30 million tonnes on the year, and highlights the importance of the US crop and estimated record production in South America. World corn stocks are seen just half a million tonnes lower on the year to a total of 310.45 million tonnes, although over eight million tonnes of this sits in Ukraine even with an expected export of nine million tonnes, which looks unlikely to be achievable.
- Markets moving sideways in choppy trade
With the USDA report published, the market has recovered 3% from last week's lows, but in choppy trade is now looking for fresh direction. Initiatives to free up trapped Ukraine grain for export have continued but gained no traction. Russia says it's not responsible for establishing safe corridors but the country could provide safe passage for ships if these corridors were established.
Turkey stated that ships could be guided around sea mines since the location of them is known by Ukraine, and certain safe lines could be established at three Black Sea ports. However, Ukraine fears that demining ports would leave it vulnerable to Russian attack and therefore progress is unlikely. There are also initiatives to establish temporary grain storage for Ukraine grain in Poland and Romania to allow harvest to progress. The Ukraine Agriculture Minister said the country lacked storage for at least 15 million tonnes and was looking for the EU to supply temporary storage solutions.
- Heat supports prices
Crop concerns across Europe have encouraged more active buying, as southern Europe reached record high temperatures. The heatwave is forecast to migrate northwards through primary EU wheat producers France and Germany this week. French winter wheat crop ratings continue to decline and are now seen at 65% rated 'good/excellent' compared to the 81% which achieved this rating last year, and the crop may now suffer from the 40⁰C heat. An official from Italy said the country would see a 15% drop in wheat production due to inclement weather and although Italy is a relatively small wheat producer - achieving 2.67 million tonnes last year - this could highlight potential production issues for neighbouring countries. Analysts have already cut estimates of the EU soft wheat crop down to 124 million tonnes, which would be six million tonnes down on the year. The 2022 Spanish wheat output might fall to little more than five million tonnes compared to the figure of over 7.3 million tonnes in 2021, due also to the inclement hot weather.
- Barley at a discount to wheat
UK feed barley values have remained flat on the week for the 2022 crop. Farmer selling has slowed as harvest fast approaches, particularly with temperatures reaching the highest levels for 2022 so far. Fresh demand has been lacking and physical barley values remain flat, meanwhile wheat futures have risen around £10/t at the time of writing (basis London wheat futures for November 22). With barley's discount to wheat widening, it may find some new crop demand.
Sterling lost value in the early part of the week including against the euro. This is something that does make UK exports cheaper to European importers. However, much of those losses have been recovered after the Bank of England announced a fifth consecutive rise in interest rates on Thursday.
- High temperatures across Europe
Temperatures have been high in Southern Europe, with winter barley harvest now underway in France. Despite the heat, recent rainfall has seen French spring barley plantings rise by 1% 'good/excellent'. This is the first increase in several weeks.
- Global oilseed prices retract with worsening economic environment
In a week where we have seen the global economy struggle further with rising interest rates, potential recessions and stock market sell offs, the overlap into the grains and particularly oilseeds markets was to be expected. The rationale behind this is that in a down turning economy less fuel is to be used, especially the more expensive part of the fuel: oilseeds-derived biofuel.
Adding to downward pressure for rapeseed prices, global weather is decent in most of the rapeseed growing regions. Australia is experiencing near perfect conditions, extreme rains in Canada are beginning to ease off and European weather looks set to finish off the crop nicely. However, it is worth noting there is plenty of time between now and harvest, even more so in Australia and Canada as undesirable weather can soon hamper crop prospects. In the last few weeks, we have also seen the export ban for palm oil out of Indonesia effectively dissolve. This comes with news that its next two crops will be bumpers, which will push more palm oil onto the market and increase the competition with rapeseed and other oils.
Recently biofuel mandates in the EU have been a hot topic, with European countries opting to reduce required inclusion levels to try and reduce the increasing cost of fuels. This week, we saw Brazil and Argentina take steps to raise their inclusion levels, with the aim of increasing supply and easing shortages that have recently been experienced in South America. This disconnect is one of many in the current economic climate, where governments are trying to contain this unprecedented situation.
In summary, the respected Oilworld publication for the world crop season 2022/23 expects a global production surplus in oilseeds and vegetable oils on the assumption of 'normal' weather in the major producing countries. The biggest production increases are seen for soybeans, as well as for rapeseed and canola. It forecasts world soybean production to increase by 35.5 million tonnes next season, with consumption rising by 7.3 million tonnes and ending stocks increasing by 12.6 million tonnes at the end of next season.
Following the earlier announcement on CF Fertiliser's future plans for its Ince plant and subsequent withdrawal of the Nitram offer, there was speculation around short term AN price rises. However, CF Fertilisers has since re-entered the market with unchanged numbers for spot delivery only. There's a strong signal around tightness of AN supply into and within the UK moving forward.
Urea continues to remain flat, with US trading appearing to drive the global urea market coupled with the pound to dollar exchange rate, which continues to encourage importers to look at urea as an option. UK import statistics have provided numbers on the urea purchasing trend for January to April 2022. The noteworthy data that came from this is that urea imports were at an increase in comparison to the previous two years. Given that there are big buyers in the urea trade still to purchase, the market has the potential to increase if or/when this happens.
The recent increase in UK gas prices will lead to some discussion internally by both liquid and solid manufacturers. Any likely changes will take effect in the coming weeks if this recent increase is prolonged, and not just a reaction to speculation about stopping gas shipments into EU from Russia or the damaged gas export terminals in the USA.
- Liquid UAN/foliars
With limited volumes available for most, if not all liquid grades, this has created a good uptake by autumn buyers on the most recent terms. Autumn offers still demonstrate value in comparison to solid ammonium nitrate and nitrogen sulphur systems. Spring 2023 UAN terms could be released in the coming days, allowing growers to complete their planned nitrogen or nitrogen sulphur purchasing for crops they intended to drill this autumn.
Milling wheat premiums are at significantly high levels. Therefore, there is a renewed interest in late foliar applications to support proteins, where grain contracts allow. The challenge is around available product and suitable options. Speak to your Frontier contact about the best option for you.
The UK importers are now at or near to replacement levels of MOP. As a result, we have seen a further increase of approximately £70/t on MOP earlier this week. There is speculation around relaxation of Belarusian sanctions, but there are no formal signs that this is the case.
Phosphorous remains unchanged, but there is a lot of discussion around inputs for the coming oilseed rape crop as growers are looking to encourage the best establishment possible. We recommend that you talk to your advisor about the most suitable option, such as Oilseed Start (24-24-0+8S+Boron).
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