Frontrunner - 28th March 2024

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WHEAT

• Wheat prices spike

World wheat futures markets enjoyed a short-lived price spike at the end of last week. Early on Monday, follow-through buying took Paris futures to their highest since 7th February and 22 euros above the contract low seen earlier this month. Prices rallied following the news that the largest private Russian grain exporter was in dispute with Russian authorities and was not being issued with the appropriate documentation to allow vessels loaded with grain to sail to their end destinations.

Speculators holding near record short positions in agricultural markets panicked and bought back some of their short books, sharply driving futures prices higher in the process, with some thinking that there could be a notable move to source alternative wheat supplies from the EU and US. Fears of heightened conflict between Russia and Ukraine, following increased Russian attacks on the port Odesa and uncertainty over repercussions following the Moscow killings last weekend, added weight to the buying.

Subsequently, it became apparent that the Black Sea export pace had not been interrupted, with analysts having seen Russia ship five million tonnes of wheat during the month. Russian wheat was reported to be trading at $205/$206 FOB and bids dropping to $203 - the sterling equivalent of £160.50 - whilst London May '24 futures struck £178.00.Russia shipped 1.14 million tonnes of wheat last week alone.

By mid-week, London wheat futures had fallen £10.00 from the Monday high.

• Mixed view for 2024 production

There is a mixed outlook for 2024 wheat output for the major producers across the Northern Hemisphere. The EU crop monitoring and yield forecasting system, MARS, this week reported that a high percentage of European crops were in mediocre condition, but lifted its average yield estimate by 2% on its previous estimate to 5.91 tonnes per hectare. This is ahead of other analysts and is helped by a notable jump for Spain from 3.5 million tonnes in 2023 to six million tonnes, which is due to beneficial weather.

MARS noted that winter wheat crop conditions for the UK are worse than any other European producer. Black Sea research firm, SovEcon, raised its 2024 Russian wheat production number to 94 million tonnes, but it should be noted that much of Russia's winter wheat area is dry and deterioration of the crop is noted in parts of the south, the country's main wheat producing area. US winter wheat for the main producing states is encouraging, with Kansas 53% 'good / excellent' in comparison to 19% last year and Oklahoma 70% 'good/excellent', versus 34% last year. Canada continues to be dry.

Overall, the concern for 2024 UK wheat production is maintaining a £20/t premium for new crop London wheat futures over old crop.

BARLEY

• Friday to Monday price hike brings trade

A combination of increased missile strikes between Russia and Ukraine, speculator short covering, quarter-end financial reporting requirements and more wet weather in the EU, brought a price rally this week, with both farmers and consumers taking part on both old and new crop tonnage. The rally has since faded following the realisation that the current military activity is not curtailing Black Sea shipments.

Rain in Brazil over the weekend, on its second sown maize crop, has put an end to the mounting concern regarding post-sowing dryness. However, rain is still forecast for northwest Europe, spring barley sowing is heading into a less than ideal window - risking yield and quality - and the cost of production issue on crop '24 has not gone away. It's expected that there will be further price volatility as the spring progresses.

• New crop malting barley sowing delays prompt price increase

France now has approximately 80% sown, but with further rain forecast it is difficult to predict a finish date, with only the heavier soils left to drill. In the UK, progress has been made, but only on lighter soils. England is at best 20% sown, with Scotland at 5%. This has prompted EU merchants, maltsters and brewers to try and buy something, which is proving to be difficult. Values are notionally £10/t up on the week for new crop. Denmark is waiting for drier weather before it can make a proper start with only a small amount of fields having been sown so far, however, its sowing window doesn't close until the end of April.

• Crop '24 area predictions uncertain

The Agriculture and Horticulture Development Board's (AHDB) revised early-bird survey has generated much interest since it was published. However, the weather has not played ball and its predictions of an increased spring barley area and production will not come to fruition in the style that the industry imagined. This is also without knowing final figures for the amount of land destined for options under the Sustainable Farming Incentive (SFI).

OILSEED RAPE

• Notable movement in EU rapeseed markets

The European rapeseed market has experienced significant volatility over the past week, with prices initially exhibiting a strong upward trajectory (a continuation from the beginning of March) and then closing out the week with a correction to lower market prices. This surge can be attributed to several bullish factors:

- The rapid exit of funds from their record short positions

As funds have reduced their bearish bets in agricultural markets, including rapeseed, buying activity has intensified, contributing to upward price momentum.

- Rising oil prices - partly attributed to the Russian energy situation - have bolstered demand for rapeseed oil.

Biodiesel producers are benefiting from larger margins using relatively cheap rapeseed oil, which in turn has increased their willingness to pay higher prices for the commodity. This trend aligns with the seasonal increase in demand from biodiesel producers.

- Rumours of the EU imposing tariffs on Russian imported oilseeds and its products.

While the impact is expected to primarily affect oil and meal, the anticipation of potential trade barriers has stimulated market activity and provided support to rapeseed prices.

• Despite bullish influences the market is not without bearish pressures

Supply and demand dynamics remain a concern, with the 23/24 supply and demand still indicating surplus conditions. Confirmation of Australian trades into Europe suggests a record carryover, exerting bearish pressure on prices.

The balance of power has shifted away from farmers as crusher cover becomes more comfortable, with significant seed origination over the past month. This increased availability of rapeseed contributes to a bearish market sentiment. On a technical basis, rapeseed is currently considered overbought, signalling a potential correction in prices. Traders are cautious of this possibility and are monitoring price movements closely for signs of a reversal.

In the wider oilseeds market, the widely varying demand predictions for soybeans, particularly into China, presents a significant concern for the market. Any developments impacting soybean demand could have spill-over impact on rapeseed prices.

Looking ahead, despite the bearish factors weighing on the market, several bullish factors such as supportive crude oil prices and ongoing uncertainties related to Russia provide underlying support to rapeseed prices. However, caution is advised, especially regarding new crop prices where there is plenty of time for supply or demand issues to emerge and affect market dynamics.

 FERTILISER

• Urea/AN

A few dry, windy days have made all the difference to farm activity this week, with fertiliser applications now taking place across large parts of the UK and a marked pickup in demand for new orders.

Demand for granular urea has been very slow over the past few weeks, due to crops potentially needing nitrate fertiliser rather than urea-based applications, but with limited access to nitrates, either from UK or imported sources, the next few weeks could lead to supply and logistical challenges.

The world urea market has continued to slide downwards, especially in Egypt, which is one of the main suppliers to the UK. With new legislation taking effect in England from Easter Monday requiring that all urea-based products must include a urease inhibitor, demand could remain slow. UK distributors will have one eye on the summer when prices typically reset due to lower gas/ammonia prices and demand around the world.

In contrast, nitrate supply remains limited, with CF Fertilisers offering May tonnage only and the usual imported AN sources finding more lucrative markets closer to home. April supply could be a challenge if spot demand for nitrate increases as the weather improves.

• UAN/Liquid

Growers with tank capacity and a requirement for additional nitrogen and nitrogen sulphur grades should be mindful of the imminent Easter weekend and organise deliveries in a timely manner. A full portfolio of products is available for growers who have further requirements for this season.

Under the aforementioned urea stewardship scheme, from Monday liquid users in England will require the inclusion of a urease inhibitor such as BASF's Limus Perform. Its inclusion has proven to deliver agronomic and financial benefits, including improved nitrogen use efficiency (NUE) of up to 7% by reducing ammonia emissions by up to 98%.

• Straights/PKs

There has been very little change in the straights market from last week. Tightness in supply has continued, with blenders running out of various raw materials whilst new cargoes arrive - just in time – resulting in production days lost while boats discharge.

Many suppliers say fertiliser demand is approximately a month behind, but the warmer weather and longer days will soon reduce that gap. The question now is whether the fertiliser supply industry can meet this change. For many seasons there has been talk about the potential challenges of a compacted spring and this could be the year where it becomes a reality. Our teams will continue to advise on suitable options and appropriate alternative solutions that may come in an IBC rather than a bag.

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