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Frontrunner - 29th January 2021

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WHEAT

  • Markets recover some losses

Early this week, world wheat futures markets continued to be pressured by speculative long holder selling. Losses extending from the contract highs reached last week have resulted in futures markets losing almost all the price gains they had made since the start of January. Losses for London wheat futures were almost £15/t. However, further political intervention that will disrupt grain flows partnered with soaring Chinese import demand helped generate a rally from the lows. This highlighted how market price volatility may be expected to continue.

  • Russia confirms export tax

The Russian government formally approved its proposed €50/t wheat export tax which will come into effect from 1st March and run to 30th June 2021. It remains unclear what the exact impact of these taxes will be, but restricting grain flows from the world's leading wheat exporter can only support prices in the short-term. Russian officials have confirmed they will continue taxing wheat exports from 1st July but, instead of the fixed rate, a formula will be used to calculate exact amounts. Meanwhile, disruptive weather is preventing 70 vessels from loading at the port of Azov, resulting in 20km queues of lorries waiting to tip.

The Ukrainian government has also been pressured by its domestic consumers to ensure the grain the country needs is affordable and available. Consumers had called for a 22-million-tonne limit on corn exports, but the government decided to set the corn export cap at 24 million tonnes. It is not anticipated that this will have any major effect on world grain markets.

  • China accelerates its corn buying

This week, China took advantage of the dip in corn prices, making significant purchases of US corn. New sales topped 3.3 million tonnes and the news triggered a sharp rally for Chicago Board of Trade (CBOT) corn futures, which set fresh contract highs and gave support to wheat.

The US has already sold 75% of its exportable surplus when, in an average season, little more than half would be sold at this time. US wheat export sales are also ahead of average, with over 80% sold. In its January World Agricultural Supply and Demand Estimates (WASDE) report, the United States Department of Agriculture (USDA) saw US corn stocks falling by nine million tonnes on the year, suggesting the current export pace is unsustainable. The next US corn crop is yet to be drilled. Analysts see Chinese corn imports this season climbing to between 25 and 27 million tonnes. This compares to the USDA's latest estimate of 17.5 million tonnes, meaning we might expect some bullish adjustments in the February report.


BARLEY

  • Export demand pressurised

Demand for feed barley remains supported despite the fact that the UK is facing increased competition from other EU origins into the Dutch market, which has been the primary importer of feed barley throughout crop 2020. Domestic demand remains strong for feed barley at current discounts to wheat, with barley holding its position of near-maximum inclusion in compound feed rations. Demand from countries outside of the EU also exists but with increased competition; Saudi Arabia purchased 660,000 tonnes – 180,000 tonnes more than originally tendered. However, this is expected to be primarily of Australian origin as Australia continues to dominate this trade flow. Meanwhile, the official confirmation of the $10/t export tax on Russian barley has left just six weeks to export tariff-free.

  • Attention turning to crop 2021

Following back-to-back barley crops in excess of eight million tonnes each, crop 2021 is expected to be smaller. This is as a result of a smaller spring barley area, with more land being switched back into winter cropping in comparison to last year. Early estimates from the Agriculture and Horticulture Development Board (AHDB) suggest a crop of around seven million tonnes and, with a larger wheat crop forecast than for crop 2020, barley finds itself positioned at a much smaller discount to feed wheat at this stage.

The malting barley market continues to be dominated by the impact of Covid-19, with the outlook likely to remain uncertain for months to come. The UK government will set out its roadmap for exiting the current lockdown in late February, but it is likely that a return to a full opening of the hospitality sector is yet some time away. 


OILSEED RAPE

  • Spectre of low world stocks returns

After a bit of a price correction earlier this month, the old fundamentals in global oilseeds markets have re-established themselves in recent days. The selling by funds, or speculators, following a spell of wet weather in South America was quickly replaced by the realisation that the original difficulties in stock levels hadn't gone away. There is now talk in the US about the forthcoming battle between exporters and crushers, which will be waged over the remaining soybean stocks during the spring and summer periods. Crush margins are strong and there is talk of the need for further substantial price rises to choke off domestic demand to price in Brazilian exports to China, or even to allow Brazilian exports to price back into the US.

  • Tight EU market for rapeseed

As usual, where soybean markets lead, rapeseed markets generally follow. UK rapeseed prices have risen by about £10/t over the past week. The depressed European crush volumes that were seen in the first lockdown have not been repeated in latest one. In December 2020, the EU crush volume was the largest for that month since 2016, bolstered mainly by high meal prices which are set to remain elevated during the January to March period. Traders are now revising the annual crush volume up to a new total of just over 23 million tonnes, which will require the import figure for 2020/21 to be close to 6.5 million tonnes. The only potential obstacle might be the value of sterling. Sterling against the euro currently sits at almost 1% firmer than it was a week ago, which, in isolation, makes imports cheaper by about £3/t.


 PULSES

  • A rise in old crop feed bean prices

The old crop feed bean market continues to tighten up and, unlike wheat and barley, values have risen £2-3/t over the past week. At these higher levels, we are seeing farmers now making sales, as current prices have paid for the storage of the crop. There are no premium markets available as Australian imports are flooding into the Egyptian market and depressing values; they are currently lower than UK feed beans.

  • Good buybacks available for spring pea and bean seed

Supplies of spring pea and bean seed are already getting tight and, with good buybacks available, now is the time for growers to cover their seed requirements and get new crop contracts in place. Please contact your local Frontier farm trader for further details. 


 FERTILISER

  • Nitrogen

Urea remains the global driving force in the nitrogen market this week, with values increasing again by another $15/t. Bulk prices loaded in Egypt are now approximately $360/t for March, putting replacement granular urea delivered to UK farms in a bag at more than £325/t. India is expected to return to the market next week. While the volume the country requires may only be 500,000 tonnes, it will maintain pressure on the supply situation. Based on regular annual usage of urea, the UK market is running well behind and figures suggest that 40-50% still need to buy. With very low physical domestic stocks, it's clear these buyers will need to look at alternative products.

UK nitrogen levels have moved up by £5/t on the back of urea markets and the recent increase in gas prices, leading to the current reduction in global ammonia production. Imported nitrogen supply is very tight with no offers on new shipments until March at the earliest. Overall, the UK is facing a situation of high demand in comparison to stocks available, coupled with an already overburdened haulage market. Planning now for nitrogen and nitrogen sulphur grades, including top-ups, will be key to ensuring products are with growers on time and secured before the next price rise.

  • PKs

Whilst potash prices remain stable, phosphate levels are still moving up. Current prices offered in the UK don't reflect replacement costs, and another increase is expected soon. There are also delays in loading shipments in North Africa due to the sea state, which could also cause a break in physical phosphate availability. Growers are advised to discuss requirements and options on PKs and NPKs with their Frontier contact.


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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