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Frontrunner - 18th December 2020

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WHEAT

  • Restrictions for Russian wheat exports

Russia, the world's leading wheat exporter, officially confirmed it would introduce a €25/t export tax in the new year. The tax will be applied to its 17.5-million-tonne export quota, which begins on the 15th February and runs to the 30th June 2021. Traders are unlikely to exceed the quota in light of the news that tonnage which surpasses this figure will be taxed at 50% of the sales value.

Market reaction was initially negative due to concerns that traders may step up their sales and shipments ahead of the introduction of the tax. However, that might prove difficult with reports of delays in obtaining documents from the Russian customs service. Overall, this political interference is bullish for world markets and prices have risen this week; although not for Russian farmers. Analysts have highlighted that there will now be less Russian wheat available to ship this season, cutting estimates from almost 41 million tonnes to less than 38 million tonnes.

The impact of the export tax was soon apparent this week when Egypt tendered for wheat for shipment 1st to 15th Feb. Russia has dominated sales to Egypt this season, but its offers proved too expensive. Romania and Ukraine secured sales for two cargos each; a total of 235,000 tonnes with values around $283/t, including freight. This is $7/t more expensive than their previous tenders on 1st December.

Two more of the world's primary wheat exporters are also seeing their surpluses shrink. Wheat exports from the EU reached 11.6 million tonnes and will increase further this month, leaving just 12 million tonnes to ship in January to June. In the same period last year, the EU shipped over 20 million tonnes without any Russian export restrictions in place. Ukraine is now over two-thirds through its wheat export quota with six months and two weeks of the season to go. 12.2 million tonnes has been shipped from the 17.5-million-tonne quota.

  • Russian 2021 crop in trouble

Traders are also keeping a close watch on Russia for its 2021 wheat crop potential. Analyst Sovecon revised its estimate to 76.8 million tonnes, which is down from its previous estimates of 81 million tonnes. Winter wheat crop conditions are described as the worst for a decade; it's estimated that up to 3.2 million hectares could prove to be a total loss.

  • Analyst signals bounce for UK wheat production

French analyst Stratégie Grains published its December EU crop balance sheets this week, which have become the EU-27 estimate; data for the UK is now shown separately. The report places the UK 2021 wheat crop 50% higher on the year, rising from 10 million tonnes in 2020 to 15 million tonnes, which signals a return to surplus and a need to export. Domestic wheat prices will be based on export markets in contrast to this season's exaggerated values based on imported supplies. The EU-27, plus the UK, are predicted to produce 144.6 million tonnes in 2021, up from 128.9 million tonnes this season. This increase may well be needed to replace the wheat crop losses predicted for Russia in 2021.

At one point this week, UK wheat prices fell £7/t from last week's highs, driven by sterling volatility. Sterling gained 2.5% as a result of news that talks between the UK government and EU negotiators to find a Brexit deal would be extended.


BARLEY

  • Brexit uncertainty pushes current contracts

It has been a relatively quiet week in the barley market, with little fresh trade of note and a rather lethargic approach to the festive period. The market continues to be dominated by the uncertainty of the Brexit outcome and it looks like negotiations around a potential deal will go right down to the wire. Unsurprisingly, therefore, it has been a busy week of executing existing export sales of feed and malting barley to Europe before the potential January tariffs.

  • UK barley competitiveness in the balance

Tunisia purchased 100,000 tonnes of barley this week for January-February shipment; this was purchased at levels below UK offers. A firming sterling this week did little to help the UK's barley competitiveness against other origins. It's clear that if the UK does not get a trade deal with Europe, then UK barley prices will need to drop to become competitive in the global market in order to move the UK's sizable exportable surplus. As we move further into 2021, it is important to remain focussed on other Southern Hemisphere origins such as Australia and Argentina, which will also be competing for the same North African and Middle Eastern demand as the UK.

  • Malting barley consumption remains low

The impact of Covid-19 continues to dominate both the brewing and distilling sectors and, subsequently, the demand for malting barley. While news of a vaccine is positive, its rollout to large parts of the population will not occur for several more months. As a result, malting barley consumption could remain stagnant due to the pandemic for some time. The ability to forecast demand is also virtually impossible for the sector and many malting barley buyers are taking a risk-adverse and hand-to-mouth approach to buying malting barley.


OILSEED RAPE

  • A year of rising prices

This time last year, a forward sale for spot delivery in December 2020 would have been at £50/t below current trading levels. The market was a further £10/t lower by mid-March at the height of concerns over demand destruction due to worldwide Covid-19 lockdowns. Since then, prices have staged a remarkable recovery. The UK crop proved to be the smallest since 1987 and less than half of the output seen just a few years ago.

Furthermore, aggressive stockpiling of soybeans by China has been a major factor in turning the market around in addition to less-than-ideal growing conditions for global oilseed crops in general, which has pushed stock levels in many of the key exporting nations to uncomfortably low levels.

  • South American weather is the key watch point

This week has seen oilseeds markets regain their positive momentum with US soybean markets up four days in a row and hitting a three-week high. November US crush numbers were one million tonnes greater than trade estimates and it is now thought that US farmers are close to 85% sold on beans for this season. South American weather forecasts have once again turned drier, with Brazil being especially dry in the west and south while Argentina is now seeing hot and dry conditions extending into January. To worsen the situation, Argentina is currently in the midst of a strike of its port workers. Inflation is officially recorded at 31%, but unofficial estimates are much higher. Until this dispute is resolved, there will be no exports of meal or oil out of this important world supplier.


 FERTILISER

  • Nitrates/urea

It has been slightly quieter this week in terms of price movements. Urea continues to remain firm with values edging up $5/t. North African suppliers look reluctant to supply any urea into the European market for January delivery and by the time cargoes are looked at, it may be too late for importing any more boats into the UK. This, along with a 25% increase in gas prices this week, indicates that ammonium nitrate values will still firm significantly into the new year; the only caveat being the exchange rates of sterling against the dollar.

It's expected that UK suppliers will pull terms either today or early next week, with another significant increase in values coming into the new year.

  • NPKs/PKs

Throughout November and through December so far, we have seen a marked increase in customers ordering product for spot and January deliveries. With up to 40% of the market potentially still to order and a narrowing window for deliveries, we will see huge pressures in both supplier and haulage capacity. There is a distinct possibility that January terms will be withdrawn this side of Christmas, with limited availability of some products through January. With this in mind, and further price rises imminent, it remains in everyone's interest to make sure orders are covered at the earliest opportunity. While the Brexit outcome is still to be known, news channels are widely reporting that ports are struggling to cope with supply and demand pressures across all manufacturing industries, suggesting supply problems are imminent.


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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