Frontrunner - 25th March 2022

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WHEAT

  • Markets remain volatile

Global wheat markets experienced another week of notable price volatility in the wake of the continuing Russia-Ukraine conflict. European wheat futures struck new contract highs due to increasing fears that there will be no short-term end to the conflict and that there will be significant cuts to Ukrainian 2022 grain production.

The Ukrainian Minister of Agrarian Policy and Food has said that spring cropping is likely to be dramatically reduced as a result of the conflict. Corn could see only 3.3 million hectares drilled, which compares to 5.4 million hectares last season. He also said it was likely only four million hectares of winter wheat would be harvested from the 6.5 million hectares drilled. These comments broadly align with other recent analyst estimates. Spring drilling is underway in the northwest region of Rivne, with a target to drill 420,000 hectares. An official has said that 66% of winter crops have been fertilised, with local analysts sharing a similar view. Analysts APK-Inform estimate Ukrainian wheat production at 14.9 million tonnes and corn up to 18.5 million tonnes, which is just over half the production levels seen in 2021. The analysts are optimistic that almost 30 million tonnes of grain could be exported during the season but, with ports closed, and in many cases suffering damage from the conflict, there would need to be a railway solution to enable this. With additional restrictions from economic sanctions affecting Russia, it seems unlikely that the world's major wheat importers will have an option to source cheaply available Black Sea grain from harvest.

  • EU food security concerns

The EU commission has presented non-legislative measures to tackle turbulence in agricultural markets and increase food security, although it has stressed that the EU food supply is not currently at risk. Its measures included urgent food aid to Ukraine and support for its agricultural sector with fuel.

The commission highlighted flexibility in biofuel blending mandates, indicating concessions could be made on how much vegetable oils would need to be included in biofuel blends. A reduction in the minimum volume would leave agricultural land that would be used for growing product for biofuels now free for food production. Individual member states will be encouraged to cut mandates for blending into fossil fuels and to reduce greening obligations in order to boost crop production on fallow land. This news resulted in some profit taking and futures markets easing from Thursday's highs.

The commission also said that restricting exports was trade distorting and incompatible with the EU single market. The comments were made with Hungary in mind; the country has recently introduced an export ban for agricultural commodities.

  • Canadian drought threat

Prolonged periods of dry, warm weather last spring and early summer caused severe yield losses for the Canadian wheat crop. Total production fell to below 22 million tonnes, which is a sharp reduction from the 35 million tonnes produced the previous year when over 26 million tonnes were available for export. This significant loss of quality wheat proved a primary wheat price driver last autumn. With Ukraine likely to be absent from export markets for some time, and with troubles for Chinese and US winter wheat crops, the world balance sheet can ill afford a repeat of crop losses in Canada this season. Southern Manitoba will benefit from heavy snowfall but much of the Canadian Prairies remain parched. Southern Alberta and central Saskatchewan had extreme drought conditions as of 28th February, according to Canada's drought monitor. Although there has been some recent rain, with such low soil moisture levels, wheat crops could be vulnerable to dry periods. 


BARLEY

  • Volatility continues in old crop feed barley market

Volatility continues in the old crop feed barley market with values up around £10/t this week for the April to July positions. A mixture of first-hand buyers and trade shorts struggled to take some cover. Export demand has added another dynamic to the UK trade, with business concluded this week for a cargo to Ireland at what has been a market high for UK export barley. Values for feed grains at current levels must be pushing the livestock sector to its limit, as producers are starting to question whether their business models are sustainable in the medium term.

  • New crop feed values strengthened

New crop feed values have strengthened this week, as continued supply uncertainty spills into forward positions. The trade is interested in estimates for how much spring barley will be planted in Ukraine while questioning how much of the winter crop that is already in the ground will be successfully harvested.

Further volatility is almost certain as the conflict continues to unfold.

  • UK spring barley drilling underway

Spring barley drilling across the UK is ongoing at pace, as fine weather is seen in all areas. New crop malting barley values remain strong due to farmer sellers being largely absent at present. Eyes will now turn to weather patterns across Europe as regular rains on the spring barley crop will be needed to maximise the crop potential.


OILSEED RAPE

  • Another turbulent week for OSR and wider oilseeds markets

This week, domestic oilseed rape markets got off to a fiery start with old crop MATIF futures gaining €57/t in just two days, on the basis that consumers are trying to buy rapeseed oil as an alternative to the sunflower oil that is now stuck in Ukraine. On Wednesday, the market traded within a €97/t range and closed €68/t down on the day. This was an incredible price move to see within a single day and was triggered by the EU hinting that biofuel blend mandates may make concessions on the quantity of vegetable oils that must be included.

On Thursday the market mostly recovered, clawing back €51/t, which rounds off the most volatile week ever seen in the rapeseed market.

  • Conflict drives the market

The conflict in eastern Europe remains the fundamental driver in this market, with old crop Ukrainian oilseed supplies non-tradeable. There are also serious concerns as to whether the rapeseed currently planted in Ukraine will get the care it needs before harvest, and whether its spring planted sunflower seed will indeed go into the ground. Every day the conflict seems to get more complicated, further prolonging the timeframe of effects on this market. The conflict seems set to continue for some time and while it is ongoing, the usual market price drivers, such as the weather, are likely to be secondary factors in market change.


 PULSES

  • Pulses market stand-off

With very little volume of old crop beans trading and the market seemingly stalled at significantly higher levels, it's now a stand-off. The question is, will the consumers who need to cover in their last positions of June and July make a move or will the long holders bail out and take the recent big price hikes? As it's only late March and with little volume left to trade, it's expected that the stalemate will continue for at least the next few weeks.

  • Perfect soil conditions for peas and beans

New crop planting of spring peas and beans continues into almost perfect soil conditions on a spell of recent warm weather with some rain in the forecast for the next ten days. As ever, trade is limited but, for the foreseeable future, bean values will follow wheat while peas will tend to stick within the price range set out in the various commercial buy back contracts. For further information on new crop contracts, please contact your local Frontier farm trader.


 FERTILISER

  • AN/urea

The AN markets remained stable this week with domestically produced nitrogen is now being offered for April at the previous March delivery price. The focus across Europe and other regions is still on the supply route for ammonia as the loss of 300,000 tonnes per month from Russia starts to bite. Ammonia prices remain firm at over $1200/t.

India is expected to come into the market again soon for more urea. Therefore, prices have remained firm at approximately $1250/t for bulk replacement tonnage into the UK. It's not clear which country will supply India, however financing and shipping is expected to cause some issues.

With all nitrates, supply chains have changed as countries seek out new relationships to ensure delivery of physical products in the spot market. Supply security will be key over the coming months and UK growers still needing AN should look at UK supply, as alternative origin products can't be guaranteed to arrive in time for applications.

  • Liquid/UAN

Availability of UAN remains tight across the UK market, with suppliers offering POA terms where product is required for current crop applications.

Foliar products are limited in availability due to continued raw material volatility and the recent spike in the urea price. Pricing of forward volume is challenging due to the difficult and unpredictable market conditions and the ever-changing gas price.

Please discuss any outstanding current season requirements with your Frontier contact at the earliest opportunity.

  • PKs/straights

Potash levels are starting to move up, as Brazil begins buying in volume. The impact of the sanctions against Russia and Belarus has cut 15 million tonnes of supply from a 40-million-tonne global demand. China is also withholding five million tonnes of supply, taking the total supply cut to 20 million tonnes – half of global demand. Subsequently, a sharp jump in MOP prices can be expected soon.

Phosphates also look firm as India looks to secure and subsidise to its farmers' DAP. Replacement values into the UK are now over $1300/t in bulk. 


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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