LISTEN TO FRONTRUNNER
Frontrunner is also available as a podcast, so you can hear the latest from our traders while you're on the go. Listen below or subscribe to the report on Acast, Spotify, Apple Podcasts and Google Podcasts. This week's report is read by key account manager, Zoe Andrew.
- AHDB highlights tight old crop wheat supplies
The Agriculture and Horticulture Development Board (AHDB) updated estimates for the current season's UK wheat balance sheet this week, highlighting a huge two-million-tonne cut in domestic wheat consumption. Demand in the human and industrial sectors is now seen at 6.438 million tonnes; almost half a million tonnes lower than last season.
This is primarily due to loss of demand for biofuel and starch following the closure of the Roquette plant in Corby in December. Miller demand is also lower as a result of the impact of the coronavirus and subsequent lockdowns.
The biggest drop in wheat use, however, is within the animal feed sector where year-on-year demand will be over 1.5 million tonnes lower. Feed barley has been heavily discounted to wheat by as much as £50/t, resulting in wheat being displaced in the feed ration. Wheat imports are seen doubling on the year to 2.1 million tonnes, but the small 2020 wheat harvest - just 9.658 million tonnes - leaves total supply five million tonnes down on the year. This also results in an exceptionally tight supply situation ahead of the 2021 wheat harvest. Old crop wheat prices look set to continue to reflect import costs.
- New petrol blend fuels UK wheat prices
In its quest to reduce CO2 fuel emissions, the UK Government is set to increase renewable fuels in petrol blends from September 2021. Currently, petrol contains 5% bioethanol (E5) but this will increase to 10% (E10) in September. The good news for UK farmers is that ethanol production made from their wheat will restart during the 2021-22 season when the Hull plant resumes production. Historically, UK ethanol production has used up to one million tonnes of wheat annually. However, how quickly this level of production will resume remains to be seen. With a bounce back likely for wheat use in the animal feed sector next season, the domestic supply and demand balance sheet could again be very tight.
- Weather and taxes underpin markets
Weather and politics combined to lift wheat markets earlier this week. Last week's extreme cold across the primary US winter wheat producing states is a concern and monthly ratings show a drop in crop condition. Kansas saw its winter wheat crop ratings fall three points from last month, with 40% of its crop rated 'good' to 'excellent'. Oklahoma fell 13 points, with 48% of its winter wheat crops rated 'good' to 'excellent'.
Meanwhile, extreme cold has been felt in the Black Sea region, with winter wheat having varied amounts of protective snow cover. Analyst SovEcon cut its 2021 Russian wheat production estimate by 1.5 million tonnes to 76.2 million tonnes.
In Brazil, continued rainfall is further delaying soybean harvesting, which is consequently delaying the planting of its second corn crop. Central and southern Brazilian corn crop panting increased 11 points on the week to 24%, but this trails behind last year's figures when 51% had been planted at this stage. The optimum corn planting window has now passed. With Russian wheat export taxes set to jump to €50/t next week, uncertainty over future wheat shipments is predicted to push more demand to the EU for both competitively priced old and new crop supplies.
Paris wheat futures rose to new contract highs on Thursday. However, US weekly wheat exports were the lowest since the first week of January at just over 182,000 tonnes. This triggered a wave of profit taking for US markets, wiping out gains made earlier in the week.
- Strong domestic demand for feed barley
Old crop feed barley prices have found support this week on the back of firmer old crop grain markets in both the UK and EU. Domestic demand remains strong for feed barley and is likely to remain so through to new crop considering that barley is maintaining its considerable discount to wheat. This strong demand was highlighted by the AHDB, which increased animal feed usage of barley to over 5.3 million tonnes for crop 2020 in its latest balance sheet.
- Sterling strengthens on back of vaccine rollout
The strength of sterling is also weighing on barley markets, with GBP up almost 6% against the euro from the 1st of January. The widespread rollout of the Covid-19 vaccine in the UK, which hints at a possible earlier re-opening of the economy than first anticipated, has been the main supportive driver for this. The British vaccine rollout is viewed positively when compared to the rate of vaccinations in the EU.
Sterling strength has not helped the competitiveness of UK export values and increased freight rates are also preventing connections on any fresh export business. Export demand exists where barley remains competitive within the grains matrix, with both Tunisia and Algeria purchasing 275,000 tonnes of barley between them in the last seven days, as well as interest being present from the EU.
- Drier weather ahead of spring drilling
Most parts of the UK have seen drier weather and milder temperatures since Storm Darcy hit earlier this month, although spring drilling is unlikely to begin in large parts for at least another couple of weeks. Old crop demand is likely to remain muted in line with previous months, with the Government's roadmap for exiting the current lockdown revealing that pubs won't open until April. Indoor drinking will follow from a month later and the hope is that there will be very few restrictions on social interactions by the summer.
- Strong sterling fails to halt price rises
A strong sterling is the only negative factor currently associated with domestic rapeseed prices, with talk in the wider oilseeds market dominated by concerns over South American weather, perilously low stock levels (particularly in the US), a heavy deficit in supply within Europe and relentless Chinese buying of almost all commodities. Sterling has firmed against the euro by 5.5% since the start of January, yet old crop UK farm prices have risen by over £40/t during the same period. Meanwhile, new crop levels have risen by a more modest £15/t. This leaves 2021 crop levels at around a £40/t discount to the current marketing season.
- Battle for spring acres in the US
This level of discount suggests that traders are expecting a substantial rebuilding of stocks during 2021/22, but it is hard to find any evidence to support this. The dominant oilseed in global trading is the soybean and its dominant producer, accounting for 36% of global exports, is the US. This is why the Outlook Forum report from the United States Department of Agriculture (USDA), which was released last Friday, has been of particular interest.
This forum looked at the spring planting intentions of US farmers and predicted a record-breaking 182 million acres will be sown to corn and soybeans, with soybeans accounting for 90 million acres of this total. This feels as though it should be bearish news but in fact, this would not have a significant impact on rebuilding year ending stocks if increased demand is factored into these plantings and if these plantings are indeed achieved. The US stocks-to-use ratio is forecast to be a perilously low 2.6% at the end of 2020/21 and will only rise to around 3.2% at the end of next season according to the plantings projected at the forum.
- Tight stock position seen extending into 2021/22
Traders will be keeping a close watch on the ebb and flow of these spring planting intentions over the next few months. The next major USDA report covering this topic is due out at the end of March, but it will be several months until there is a certain end picture on the battle for acres between corn and beans. Currently, new crop beans are trading at 2.6 times the price of corn, but if this relationship changes, then farmers could make late alterations to their cropping plans. Additionally, corn is typically planted in April/May while soybeans are planted later in May/June, leaving weather during these months as another possible factor in shaping the final outcome. However, the end result is unlikely to be substantially different and current indications are that the tight conditions in global oilseeds markets seen in 2020/21 are likely to extend into next season.
- Bean values at critical point
This week, bean values have managed to retain their firm values. However, this may not be the case for long, as this market has a history of dropping away quite quickly without notice due to the finite demand for the product. If you throw the firm sterling into the equation, UK competitiveness is further outweighed and, in turn, UK ex farm values are further impacted. If you are a grower with decent volume left, now is a sensible time to start looking at values.
- Old crop pea market hesitant
In the last few weeks, large blue values have been slipping due to a lack of new demand from both domestic and international customers. This can be put down to a variety of factors; the main influencers being lower demand for human consumption pea products and the relative expensiveness of large blue in comparison to Canadian peas.
Marrowfat peas are firm and any free market samples out there should act with some urgency as values are currently strong.
Meanwhile, the feed pea trade is virtually non-existent, with end users having already filled their requirements with relatively cheaper comparative products.
CF Fertilisers unsurprisingly withdrew its February Nitram terms this week. The March offer now comes into full effect at a £10/t carry. Prices into April are likely to attract the same increase. Imported nitrogen is available, but replacement shipments have been delayed, meaning a break in supply is very likely. To guarantee product arrives when required, it's recommended to look at CF Fertilisers and Yara products.
Urea prices continue to remain firm for March and April with replacement levels into the UK at approximately £340/t. Supplies are also tight as North African producers say they are close to being sold out for April.
In general, soil nitrogen tests report low available nitrogen. We therefore advise taking this into account when looking at the crop demand. Plans should be discussed with your Frontier contact.
Supply chain complications continue to cause issues, with some delays of products shipped to the UK. Exchange rates have held off price increases for now and the advice for growers to purchase their fertiliser requirements still remains, not only to protect against further price rises but also to ensure a timely delivery. Shipments that have been late into the UK have added to the pressure on blending facilities as they try to catch up on orders with March capacity filling up fast.
Get in touch