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Frontrunner - 20th November 2020

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The report is read this week by farm trader, Ollie Wilson.


WHEAT

  • Mixed world wheat markets

World wheat markets stalled this week with a lack of any fresh bullish features to drive them higher again. US Chicago Board of Trade (CBOT) wheat futures drifted as their winter wheat crop rating made modest improvements following recent rains. 46% of the crop is rated 'good' to 'excellent' and is up one point on the week. This is still well behind this time last year when 52% of the crop received this rating.

96% of the planned area is planted. Export sales were lower than expected at 192,000 tonnes. Market expectations were for 250,000-500,000 tonnes. This created a lacklustre tone for the market. However, the tight UK wheat supply situation bucked the trend, with London wheat futures setting new contract highs, driven higher by a spell of animal feed compounders taking cover for their forward positions. UK millers, however, remain mostly absent from the market and the prices they offer are heavily discounted to imported supplies. It seems likely this will continue to be the case until the Brexit outcome is established. Meanwhile, ships carrying imported supplies continue to berth at ports around the country.

  • Corn supports wheat prices

US CBOT corn futures have continued to find strong speculative fund buying, rising by almost 5% this week and setting new contract highs driven by strong export demand and concerns for crop potential in South America.

At 1.09 million tonnes, US weekly export sales were ahead of trader expectations. The country's season total is over 35 million tonnes, two-and-a-half times higher than this time last year. Corn planting in Argentina has barely advanced during the past three weeks, with 31% in the ground and crop ratings at 35% 'good' to 'excellent' compared with 47% last year. The Buenos Aires Grain Exchange has not altered its production estimate but, at 47 million tonnes, its prediction sits below the November estimate from the United States Departments of Agriculture (USDA) of 50 million tonnes. There are also concerns for Brazil. More rain for each of these major corn producers is needed, yet a dry December is likely due to the prevalent La Niña weather pattern.

  • Russian weather and politics

Russia is considering further measures to maintain enough wheat supplies for millers and feed producers, with its domestic wheat and flour products continuing to rise and set new record high levels. Last week there was a proposal to limit wheat exports from February to June 2021 to 15 million tonnes but, with 16 million tonnes already shipped and the potential for a further 12 million tonnes likely by the end of January, this measure would achieve little.

Weather is a concern for 2021 wheat production prospects with a mixed picture of snow cover across Russia. Temperatures are falling well below freezing with the potential to damage exposed crops. Some analysts already see a crop potentially ten million tonnes lower than this year despite a one-million-hectare increase in the area drilled to winter wheat.


BARLEY

  • UK export pace increasing

Old crop values up to the end of December continue to see pressure, with fresh selling opportunities limited and the trade generally focused on executing business already on the book. As mentioned previously, the UK had exported 272,000 tonnes by the end of September, but this export pace has increased over October, November and December. However, a sizeable piece of the two-million-tonne exportable surplus will not be traded before the turn of the year.

  • Uncertainty over Brexit tariff outcomes

Brexit uncertainty is still looming over the market with little clarity on any prospect of a trade deal. Without a deal, UK barley exports will incur sizeable tariffs of €93/t, although the first 307,000 tonnes would be subject to smaller tariffs of €16/t, subject to EU tariff rate quotas on barley imports. This will pressurise UK values unless other markets can be accessed.

The continued uncertainty has also had implications for malting barley which, like feed barley, has a reliance on the EU as a market for an exportable surplus. With the spring barley harvest slightly later, exports have been more concentrated across the October to December period and the market focused on executing contracts prior to the trade deadline on 31st December.

  • Covid-19 impacts domestic demand

Domestic demand has been heavily impacted by Covid-19, with malting and distilling usage down 14.7% from last year for July to September. With more regulations being implemented across the UK, the short-term demand outlook remains suppressed. However, positive reports regarding a vaccine boosted global stock markets at the beginning of the week, offering a glimmer of hope in the long-term.


OILSEED RAPE

  • Markets at new contract highs

Oilseeds prices have stabilised over the past few days; however, with European rapeseed prices finding new contract highs this week, Canadian canola prices at a seven-year high and US soybean markets trading at the highest levels since 2016, they are stable at levels that are more than comfortable for producers and any long holders in the market. Domestic rapeseed prices are sitting at the peak of a £60/t rally since the middle of March despite a 3% increase in the value of sterling since the middle of September.

  • South American weather is key

The key issue in global oilseeds markets is South American weather. Brazil and Argentina are too dry with no rain forecast for Argentina over the next two weeks and only patchy rain seen in Brazil. The key state of Mato Grosso is reporting September to November rainfall at a 40-year low in a period which is the crucial planting season for South American soybean producers. A rapid change in the weather is needed to prevent significant yield losses and a consequent switch in demand back to the US, which is not ideal given the tight stock position highlighted in last week's USDA report.

  • Demand strong

With the demand side of the equation remaining remarkably strong, it is difficult to foresee a change in market sentiment unless there is a dramatic change in South American weather. Longer-term prices will need to remain high to ensure that the world's farmers plant plenty of oilseeds crops over the next 12 months in an attempt to return global stocks to more comfortable levels.


 PULSES

  • Bean market showing some resilience

Last week, we reported some softness in bean markets due to the closure of November export contracts and accompanying factors. This gave a cold outlook for near future bean values. This week, the trade has seen domestic and foreign buyers starting to warm once again to UK beans which has given values some fresh support. This demand, however, is likely to be short-lived until we see the full extent and quality of the Australian crop, the details of which should start entering the trade very soon.

  • Demand for new crop pulse contracts strong once more

In the last few weeks, we have seen renewed demand for new crop pea and bean buyback contracts, enabling growers to guarantee minimum prices for their produce in crop year 2021. Space on these contracts is finite – please contact your farm trader as soon as possible if interested.


 FERTILISER

  • Nitrogen/urea

Global urea prices advanced again this week. In the last two weeks, prices moved up by just over 10%, with another rise likely on the back of the next Indian tender. The firming urea market has prompted nitrogen producers to increase price levels once again.

Buying of nitrogen and nitrogen sulphur in Europe remains behind that of last year, which is reason for concern given the region's very low stocks. Prices are expected to increase again as we head into spring.

In addition to the current supply situation is the uncertainty of Brexit, which is holding off imports arriving after 1st January due to the risk of tariffs and changes in customs administration.

Covid-19 is also continuing to affect the supply chain, from port and plant staff through to delivery drivers.

  • PKs

Current stocks being sold in the UK are priced at historically low levels and demand has been strong this week. In most cases, replacement levels are now higher and, as we have seen with DAP, prices will increase as new stocks arrive.


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.


Frontrunner - 27th November 2020
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