Frontrunner - 1st October 2021

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WHEAT

• New contract highs for European wheat futures

Paris and London wheat futures rallied to new contract highs this week, the jump in prices triggered by bullish wheat stocks and production data from the United States Department of Agriculture (USDA). US wheat stocks estimates for the 1^st September 2021 have been set at 1.78 billion bushels - 70 million bushels below average trade estimates and the lowest since 2007. The USDA also cut its 2021 US wheat production estimate by 50 million bushels from its previous estimate, down to a new total of 1.646 billion bushels. This is the equivalent of 44.79 million tonnes and, if realised, will be the smallest US wheat crop for 19 years.

At 1.236 billion bushels, US corn stocks estimates were well above trade estimates of 1.15 billion bushels and this tempered the wheat futures gains. US weekly corn export sales were also disappointing, with traders expecting 400,000 tonnes of its 900,000-tonne stock to be sold but only booking 370,400 tonnes.

• Larger English wheat area

The Department for Environment, Food and Rural Affairs (DEFRA) has updated its estimate for the 2021 English wheat area and published the results of its English agriculture census. DEFRA sees 1.66 million hectares planted to wheat, which is up from the 1.62 million hectares signalled in its June survey. This potentially adds 300,000 tonnes to production with many trade estimates for the UK crop in the region of 14.5 million tonnes. This is almost five million tonnes up on last season, yet despite this significant increase, the usual operation of supply chains in the domestic market is challenged by widespread high moisture and admixture levels, low specific weights and variable proteins. Lack of suitable freights adds to the current difficulties and is, in part, maintaining inflated physical wheat values and milling premiums.

New crop prices for 2022/23 season are also strong, reaching contract highs on Friday this week. Winter wheat drilling is underway but there are concerns across Europe that insufficient winter wheat seed and fertiliser could see the planted area fall and yield potential be compromised.

• Strong EU export pace

European wheat markets have found strength from increasingly strong export demand. EU wheat shipments to the 26^th September officially climbed to 6.95 million tonnes. Algeria confirmed the purchase of a further 580,000 tonnes in its tender this week, most of which is anticipated to originate from France in spite of the country's quality challenges. Foreign exchange markets are helping the competitiveness of EU wheat supplies in world markets as the euro has fallen sharply against the US dollar. The euro has been in a weaker trend, which started early September, and has now dropped to its lowest level since July 2020.

BARLEY

• Strong malting barley premiums

Malting barley premiums remain very strong and the market is well supported due to the global tightness in malting barley. However, the UK still looks to have a sizable surplus to export but is suffering from a short-term lack of liquidity as UK farmers are more focussed on autumn sowing than selling malting barley.

• Feed barley market strong

The feed barley market is also strong in the short term as the well-publicised haulage and labour shortages are causing issues moving livestock off farm. Although the discount between feed wheat and feed barley has narrowed significantly since last year, there is a general reluctance to change ration formulation now for fear of stock losing condition at this late stage.

• The importance of maintaining malting barley quality

With strong malting barley premiums, we would once again remind growers of the importance of maintaining malting barley quality. Malting barley intended for long-term storage requires drying gently as soon as possible and must then be kept cool throughout the season. Regular sampling of bulks to check quality is also recommended.

​OILSEED RAPE

• Another week of new highs

Another week has passed, bringing new contract highs that this market seems to be hitting on an almost daily basis. Prices have soared by over 50% in the last year and are currently sitting at £50/t more than at the start of September. There has been talk of low global oilseeds stocks and aggressive Chinese buying for over a year, but the reality is that the higher prices are not having a sufficient impact on demand. The appetite for rapeseed oil in the food sector is proving to be very resilient and firming crude oil prices are supporting the demand for biofuels. A weak sterling - which has dropped by over 1% against the euro since the start of this week - only adds to the current bullish mix of news.

• Uncertainty over Chinese demand and Southern Hemisphere weather

There is clearly plenty of uncertainty in rapeseed markets to come over the coming months. The trade has taken account of the size of the drought-ravaged Canadian crop and the anticipated bumper crop in Australia. The latter is forecast at around five million tonnes and is looking more certain as each week passes without major weather worries. However, the wider oilseeds complex is keeping an eye on the developing La Niña conditions in South America, which could lead to a rainfall deficiency in this region. Chinese buying activity is also being monitored. China has been relatively quiet in soybean markets in the last quarter, but the expectation is that it will almost certainly step up its forward buying given its low levels of cover.

• Vegetable oil stocks set to build in 2021/22

Trying to predict when a market is peaking is notoriously difficult. Short-term, it's impossible to rule out further gains but the well-respected Oil World trade journal is cautioning against expecting continued price rises in the next few months. The journal is predicting a moderate easing of vegetable oil prices in the final quarter of 2021 but more pressure on oil prices in the first half of 2022. This is based on analysis which sees world production of the main 17 oils and fats going up by 3.7% in 2021/22 against an increase in consumption of only 2.8%. If this prediction is realised, then stocks will build and prices could ease. The USDA stocks report that was released on Thursday this week could also change market sentiment. The forecasted production figures for US soybeans were up by an unexpected 2%, which boosts stocks and has led to an immediate short-term sell off in all oilseeds markets.

 PULSES

• Strong demand for feed beans

Feed bean demand is still strong as European buyers look to buy more UK beans for shipment in December and January. Demand is being driven up by the relatively high prices of eastern European peas. In addition, there is interest from Egypt for human consumption spring beans. However, it is very difficult to meet the required moisture specification of 15% as most UK beans require drying before shipment.

• Demand for dehulled beans

In Scotland and Norway, there is still strong demand from the aquaculture industry for dehulled beans, which are an ingredient in fish feed for farmed salmon.

At our Ruddington dehulling plant near Nottingham, we have seen tonnage throughput increase by 30% on last year. The plant gives farmers a local destination for their beans, with excellent drying facilities on site. The co-products from the plant are pelletised and can serve as a replacement for hull pellets manufactured from imported soya in the ruminant diets of UK farm animals.

 FERTILISER

• AN/urea

Following the recent news of halted production in the UK and continued hikes in production costs due to the increasing gas price, the market has seen all nitrogen-based products rise in price and further tighten the supply for all nitrogen sources. Gas is now trading at just below £2.40/therm. This is 548% higher than this time last year.

Urea prices are set to continue firming, with demand coming from South America and India in light of limited supply from China. Many North African suppliers – who represent the main route for urea into Europe - are reporting sales into November. If the UK requires product in time for the usage period, the shipment window is closing. Farmers are advised to look at compound NPKs as an alternative nutritional programme.

• UAN

Limited volumes of UAN are now coming into play for tank fill and spring 2022 delivery at values mirroring the solid market. Physical availability for the spring delivery period is the central topic of discussion around UAN. With surging gas prices and continued discussions around haulage, any volumes that are still required should be sought as early as possible.

• PKs

Phosphate and potash prices are continuing to rise. China, which contributes 30% of the world's phosphate supply, is expected to cut exports. Potash will follow the trend as Chinese and South American demand has increased further, adding to tightened supply to the UK.

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