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Frontrunner - 18th June 2021

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WHEAT

  • Wheat and corn prices fall

Wheat prices have fallen sharply in recent days and London wheat futures have lost more than £10/t from their highs early last week. The fall has been driven by the US agriculture market, particularly by US corn, which has lost over 12% of its value this week.

A host of bearish features have combined to galvanise the aggressive speculative fund sell off. A change in weather prospects is one of the main drivers for lower US corn and wheat markets with cooler and wetter conditions now arriving and expected to benefit spring drilled crops. US markets were also pressured by speculation that the Biden Administration might allow a reduced blending of corn ethanol into fossil fuels as blenders come under severe financial pressure to meet their mandates.

Traders expect the United States Department of Agriculture (USDA) to up its US corn drilled area estimate at the end of the month in line with other analysts who see over 96 million acres planted. This compares to the previous USDA area estimate of 91.1 million acres. This change would have the potential to add up to 20 million tonnes to USDA production estimates.

Upbeat comments from the Federal Reserve on Thursday saw the US dollar gain over 2% in futures exchange markets, forcing the US to lower its prices to remain competitive in export markets.

  • US drought and crop conditions worsen

US crops are in desperate need of the forecasted beneficial weather. Over 40% of the primary corn producing state Iowa is now subject to severe drought and almost two-thirds of key spring wheat producing state+ North Dakota is under extreme or exceptional drought. It's no surprise, therefore, that the latest weekly US crop ratings have worsened.

Winter wheat slipped two points to 48% rated 'good' to 'excellent' and spring wheat ratings dropped one point to 37% rated 'good' to 'excellent'. This crop is clearly in poor shape when compared to the 81% that achieved this rating this time last year. In fact, farmers are reporting their wheat fields are as bad as they have ever seen.

Corn slipped four points to 68% rated 'good' to 'excellent' with primary producing state Iowa down 14%. This is the biggest weekly loss of condition for 33 years.

  • 2021 Black Sea wheat exports seen increasing

A Reuters survey of analysts, officials and traders indicates increased wheat export potential for the three major Black Sea wheat producers: Russia, Ukraine and Kazakhstan. The average estimate sees a rise of 5% year on year to 66 million tonnes with Russia remaining as the world's top wheat exporter. This is despite a small fall in overall production to 124 million tonnes.

However, this week analyst group APK-Inform cut its Ukraine wheat production estimate to 27.3 million tonnes, which is well below last week's USDA updated estimate of 29.5 million tonnes. There is also increasing concern for Russian and Kazakhstan spring wheat crops, which are reported to be enduring increasing heat build-up.

Meanwhile, much of western Europe is seeing beneficial rain and French weekly winter wheat crop ratings remain stable at 81% rated 'good' to 'excellent'; well ahead of the 56% that achieved this rating last year.


BARLEY

  • Old crop prices fall

As a result of the recent spell of hot weather in the UK, there has been speculation this week that the harvest date for barley will be earlier than first anticipated in East Anglia. Subsequently, prices in the region have fallen sharply.

However, prices in the west and north of England remain static due to the potential of later harvest dates and a tight haulage market, which is due to the sheer volume of wheat heading north and northwest from southeast England.

Scottish barley maintains its premium over England. Our advice to anyone holding unsold stock is to sell any balances now.

  • New crop values sink but volumes traded are very low

Market bids and offers have fallen alongside US wheat and maize futures. However, traded volumes are minimal. US futures are driven by forecasts of rain, debates over the biofuel cereal inclusion rate and a stronger US dollar. All of these features are encouraging fund long holders to sell quickly.

However, there are some serious crop stressors in the US major maize and spring wheat producing states. Continued rainfall in the Black Sea region is raising quality questions over milling wheat originating in these areas in addition to concerns over a potential heat build-up in eastern Russian regions.

Meanwhile, the Baltic states are experiencing dryness. On the other hand, the central and western European crop looks good.

  • Currents rains will help malting quality on spring barley crops

Much-needed rain has arrived to help with the grain filling stage of all cereals but especially for spring barley, which was in need of moisture in the region west of London to Kings Lynn. Hopefully, rainfall will reach western England where growers have had to cope with a series of dry springs and early summers in recent years.

Beer sales have been above-average recently, leading old crop values to end on a high note in East Anglia as merchants find themselves short and needing to cover product sold in their recent sales in their June delivery.


OILSEED RAPE

  • Rapeseed prices are falling sharply

After more than a year of bullish news and broadly rising prices, a near £50/t drop in new crop rapeseed values in the past ten days has shaken market confidence. Early June may have been a turning point in oilseeds markets. However, concerns over low global stock levels are gradually being replaced by an increasing feeling that 2021/22 might be a campaign during which stock levels are slowly rebuilt rather than eroded away.

  • Record oilseeds production forecast

There is competition from corn this week, but high oilseeds prices appear to be on course to ensure that farmers will plant a record level of all oilseeds for production in 2021. Oilseed plantings have been rising in recent years. The Oil World Annual recently reported that it sees plantings up by 11 million hectares this year, compared to a ten-year average growth rate of just 4 million hectares. High prices will also ensure that farmers invest in their crops and production is seen rising by 34 million tonnes, including an extra 20 million tonnes of soybeans to a new record volume of 615.2 million tonnes. However, the Oil World Annual sees consumption growing by only 19 million tonnes, which will allow global stocks to build during 2021/22 by around eight million tonnes.

  • Rapeseed markets remain tight

Within the oilseeds group, the one sector that looks set to remain tight next season is rapeseed even though plantings are likely to be up by 1.3 million hectares and production boosted by around 1.7 million tonnes. The low level of opening stocks means it's likely that carry out stocks at the end of 2021/22 will remain very tight, particularly in Europe.

Meanwhile, the Australian crop is forecast to increase by 0.5 million tonnes and Canada is on course to produce an extra 0.4 million tonnes of canola. Both countries are key suppliers into the UK and the rest of Europe. The Oil World Annual also sees European rapeseed production up by 0.3 million tonnes.

  • Traders remain on weather watch

The prospect of a reasonable recovery in stock levels during 2021/22 is enough to ensure that prices are unlikely to go higher in the short term. Stock builds generally don't happen at top prices and a significant weather event in the next few months will be needed to attract the bulls.

  • An opportunity for harvest 2022

Most of the rapeseed crush activity in the UK is aimed at producing high-quality oils for use in the food industry. However, a significant minority of the UK crop, usually around 5%, is grown specifically for industrial applications including for use as slip agents, lubricants and in printing inks. The varieties used in these processes are naturally high in erucic acid and the produce is commonly called HEAR rape. Demand is increasing for HEAR varieties due to its early vigour and establishment traits without a yield reduction. Frontier currently has contracts available for new growers for HEAR rape offering significant premiums, with no default, with both storage and harvest terms available. Please speak to your local farm trader or agronomist for more information.


 PULSES

  • New crop bean values under pressure

The sell-off in the wheat futures market continued to put pressure on new crop bean values this week as the crop is now really showing the benefits of last month's warm and wet growing conditions. Furthermore, with more rain forecasted, growers are more certain of a much better yield this year.

This past week, a number of large feed parcels have been priced up with values ranging from £205-210/t ex farm. The next price moves are likely to be lower as wheat values fall and the bean crop continues to benefit from near-perfect growing conditions.

  • Stronger US dollar may attract Egyptian buyers

With a stronger US dollar, enquiries for human consumption beans from Egypt may start to emerge. However, with the prospects of another high Bruchid year, sellers will be very reluctant to commit to sales until UK quality is known.


 FERTILISER

  • Urea/AN

UK ammonium nitrate prices have increased by a further £10/t this week for spot offers and August and September delivery. UK Ammonium nitrate remains very competitive in a market where replacement prices on urea are trading at £385-390/t on farm depending on destination.

The outlook in the short term remains bullish for urea prices, with Egyptian export taxes being imposed to stem the flow of product out of Egypt and into Europe. These higher levels will attract Chinese producers but not without the threat of domestic taxes being imposed. Egypt freight on board (FOB) values remain at $465/t.

  • PKs

Prices for straights have increased significantly in the past week and show no signs of easing going forward. Replacement costs for TSP, trading at £460/t on new cargoes would indicate that our advice on buying early has paid dividends. Potash positions will follow the trend in terms of price and growers should also consider taking cover on required product. Talk to your Frontier contact to consult on this year's crop.


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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