Frontrunner - 20th May 2022

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WHEAT

  • Wheat prices retreat from record highs

The world's wheat futures markets opened the week with another notable rise in prices, setting new record highs following the news that India would ban wheat exports with immediate effect.

The Indian government reacted to fears of an intense heatwave during March which cut yields, sending the country's domestic prices to record highs. The sudden ban had trapped about 1.8 million tonnes of wheat at ports which could not be shipped. Last week, the United States Department of Agriculture (USDA) estimated Indian wheat production would reach 108.5 million tonnes, leaving 8.5 million tonnes available to export to countries that can no longer source their wheat supplies from Ukraine. Recently, private analysts suggested that the Indian wheat crop could drop below 90 million tonnes which, if realised, would leave no exportable surplus.

Egypt recently approved Indian wheat for its import needs and has been assured that an agreement with India for 500,000 tonnes of wheat will be supplied. The Indian Government said sales to other countries with letters of credit will be honoured and it would look to give concessions to enable genuine exporters to be protected. This softening in the apparent export ban triggered a wave of selling mid-week as traders banked profits from technically overbought markets. That selling was encouraged further by reports that the UN was in talks with Russia, Ukraine, Turkey, the US and the EU aimed at restoring Ukrainian grain shipments. Russia said it would not co-operate unless sanctions against it were lifted. Russian 2022 wheat production estimates were increased further this week, with analyst group SovEcon adding up to 1.2 million tonnes from its previous estimate to a total of 88.6 million tonnes. Analyst group IKAR is not quite as optimistic with a figure of 85 million tonnes and exports at 39 million tonnes.

  • Northern Hemisphere winter wheat crops in trouble

This week, the annual Wheat Quality Council crop tour took place in Kansas, the primary US winter wheat producing state. US national winter wheat crop condition remains the second worst ever recorded and crop scouts' findings in Kansas reinforced the poor state of the drought-affected crops. The council now estimates a wheat yield of 39.7 bushels per acre; this is below the five-year average of 47.4 bushels per acre. This is slightly above the USDA estimated yield of 39 bushels per acre for Kansas.

On the other side of the Atlantic, the EU's primary wheat producing country, France, has endured weeks of low rainfall and temperatures this month have soared to record highs for May. French agronomists said little rain has been seen in recent months and the record temperatures had caused irreversible damage to wheat plants in some light land areas, to the point where even with substantial rain there will be poor yields. Highlighting the damage being caused, French weekly crop ratings for the week commencing 16th May tumbled nine points to 73% rated 'good-/excellent' and are now lower at this point than three out of the last four years.

  • IGC cuts world production, consumption and stocks

In its latest estimates for world balance sheets, the International Grains Council cut world wheat production by 11 million tonnes on its previous estimate to a total of 769 million tonnes. It also sees high wheat prices impacting on demand and lowered usage by five million tonnes. Yearend stocks are lower by six million tonnes on last year; this is 11 million tonnes down on the year. World corn production was cut by 13 million tonnes on last month's estimate but a notable cut of 18 million tonnes of consumption sees stocks rising by four million tonnes overall, up to a total of 269 million tonnes. However, this is 16 million tonnes down on the year for corn and, combined with wheat, the world could be ending the year with a concerning 27 million tonnes less wheat and corn stock than it began with.


BARLEY

  • Feed barley

It has been a quiet week in the feed barley market. Old crop trade remains limited, with consumers looking to be well covered while unsold tonnages on farm are also becoming limited. New crop feed barley prices have tracked the wheat market, but demand from consumers has been muted.

  • Spring barley welcomed the rain

Most parts of the UK received useful rainfall over the week - although more will be needed soon - which was especially welcomed by the spring barley crops. New crop malting premiums remain strong due to lack of liquidity throughout Europe, with farmers reluctant to commit malting barley forward because of the uncertainty about potential malting quality. It should be noted that for growers that are confident of achieving the malting specification, the market is offering the opportunity to lock into some historically high malting barley prices.

  • Demand destruction for malting barley

Demand destruction due to high prices and inflation is a factor that is becoming well discussed in all markets but especially the malting barley market. There remains plenty of uncertainty about potential changes in consumers' purchasing habits if disposable income falls. There are many questions being asked at the moment: Will beer demand reduce? If so, by how much? Will any drop be in the on trade or off trade? Could people drink less but better-quality beer, which will contain more malt and therefore more barley? It feels almost certain that a change will happen but predicting the impact on malting barley demand remains challenging.


OILSEED RAPE

  • Two-week lows on forward markets

Monday this week saw a new all-time high achieved on the Paris rapeseed futures market with €870/t trading in the November 2022 position. Farm prices in excess of £700/t were achievable, although levels have eased back significantly over the last two trading sessions to a two-week low. This was due to the news that Indonesia is set to lift its palm oil export ban from next Monday, and a legislation that has been presented in Germany that would lead to food-based biofuels being totally phased out by 2030. This time last year forward prices were £250/t lower than current levels.

  • Confusion over Ukrainian export potential

Weather uncertainty is normal at this time of the year but the situation in Ukraine, the second largest exporter of rapeseed onto world markets after Canada, is raising nervousness amongst traders to new levels. Last week, markets were taken by surprise when the United States Department of Agriculture (USDA) forecast that Ukrainian rapeseed production would not only increase from the 2022 harvest, but its exports would also push higher to 2.75 million tonnes. This clearly assumes that there will be no further destruction of the country's export infrastructure which feels far from certain. The report also predicted an increase in global production of 9.1 million tonnes, but consumption was marked higher leaving yearend global stocks at 7.2 million tonnes - this would be the second lowest level since 2016/17.

  • Chinese position unclear

In the wider oilseeds complex, attention is focused on the soybean market with the inter-play between Brazil, the US and China being crucial. After a poor harvest, Brazil is offering no beans onto global markets beyond the end of August. This leaves the US as the only realistic source of volume offers thereafter. Based on current trade projections, it is simply impossible for the US to fill the August to January slot which puts the focus back onto the demand side of the market. US crush margins remain strong and biofuel demand shows no signs of easing. China's activity is unpredictable but will have significant impact. It appears to be well off the pace on its buying, but this might be expected given its Covid-19 related lockdowns and sharply slowing economy. Yet despite this, the USDA is predicting that Chinese bean imports in 2022/23 will be seven million tonnes higher than stated in its previous report. Once again – it's hard to read the signals.


 FERTILISER

  • AN/urea/NS

New season domestic AN prices were released at the end of last week. The volume offered to the market was well below industry expectations and therefore all tonnage was committed in less than two days. The next offer will be available for delivery from September to November and will reflect higher forward gas prices - the price of nitrogen has increased by approximately £85/t. This new level puts the UK in line with current European spot prices. Tight supply of ammonium nitrate looks to remain for the foreseeable future.

Urea markets have been busy with traditional global activity. Large volumes are being sold into Europe and additionally, the Indian tender was settled at 1.65 million tonnes. Markets are slowly starting to firm back up again.

Quality nitrogen and sulphur grades are difficult to procure for the UK market, and with no domestic production, alternatives need to be addressed as soon as possible. Please contact your Frontier representative to discuss options, including polysulphate.

  • UAN

As we head towards the end of May, spot deliveries of UAN are still available for spring crops, grassland and vegetables.

Nationally, new season UAN values will be available in the coming days with early offers expected to mirror the early solid markets.

Nitrogen and sulphur UAN grades are expected to feature heavily in customers' minds and their nutrition programmes, as the market looks to cover any sulphur availability issues in the solid sector.

There have been ongoing conversions to liquid based systems and these systems continue growing within farming businesses. Farmers are looking to maximise output of machinery and better utilise their dry bulk storage space for commercial storage or greater grain marketing flexibility.

  • PK

Phosphate TSP levels have firmed, following the DAP market. Potash and related products - polysulphate and potashplus - have also increased. MOP prices in the UK are higher this week but still below replacement levels, so another rise should be expected soon. 


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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