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. The report this week is read by marketing assistant, Faye Lee.
Price volatility for the world's wheat markets continued this week. After initially making a sharp recovery following last week's slump, ultimately wheat markets failed to hold onto their gains. This was highlighted by London wheat futures, which increased by £8/t at their peak midweek before subsequently losing two-thirds of that rally.
Contrasting fortunes for potential wheat yields across the Northern Hemisphere are contributing to this choppy trade. Much of Europe, the Black Sea and central and southern US producers look set for promising crops. In contrast, much of the northern US and the primary spring wheat producing states, North and South Dakota, are gripped by extreme drought with weather primarily forecast to continue to be hot and dry. The US spring wheat condition dropped two points on the week to just 43% rated 'good' to 'excellent' compared to 80% which achieved this rating last year. This crop has the worst condition index since 1988.
The primary Canadian wheat producing regions are also suffering from dry soils although the Saskatchewan government reported the dry conditions had allowed drilling to reach 97% complete, which is five points ahead of the five-year average. Some useful rain has fallen but more is needed.
Russia's floating wheat export tax began on the 1st June, set at $28.10/t. It now seems this tax could be a permanent feature. The deputy prime minister of Russia said the tax would continue in order to protect Russia's domestic market should global food demand continue to increase. An increase in demand is certainly the case for wheat for which global consumption is rising on average by over 1% per annum.
The floating tax will change again from the 9th June, increasing to $29.40/t for wheat and a severe $50/t for corn. The Russian Agriculture Ministry left its 2021 wheat production estimate unchanged on the month at 81 million tonnes which compares to the 85.4 million tonnes that was achieved in 2020. Extensive spring drilling led one analyst to suggest that, with ideal weather, the 2021 Russian wheat crop could reach 90 million tonnes.
Analysts DATAGRO provided a more upbeat Brazilian corn production estimate at 101.65 million tonnes, which is just below the estimate of 102 million tonnes from the United States Department of Agriculture (USDA) in its May World Agricultural Supply and Demand Estimates (WASDE) report.
Both of these estimates are significantly higher than recent estimates from other analysts, some of which are as low as 90 million tonnes. These lower estimates are based on late drilled crops suffering from the worst drought to affect the country in almost a century. These crop losses have pushed export demand to the US and seen Chicago Board of Trade (CBOT) corn futures rise to their highest levels in over eight years. Meanwhile in Argentina, late planted corn crop yields are higher than expected according to the Buenos Aires Grain Exchange (BAGE). Harvest is slow, however, and has progressed to only 34% complete, compared to the 42% average for this time of year. BAGE left its corn production estimate unchanged at 46 million tonnes.
It has been quite a rollercoaster in the barley markets this week with values up one day and down the next. The old crop feed barley market has become less of a feature as higher prices and improving weather both contribute to lower demand in the UK over the next few months. Feed barley usage by feed manufacturers was confirmed as 52% higher in April 2021 than usage in April 2020. Overall barley usage in this sector for the July to April period is up 42% compared to the 2020 marketing year. These figures point to a fairly tight end of season stock situation for barley in the UK.
New crop feed barley has become more of a feature this week with interest in UK harvest barley from the Netherlands. This is welcome demand for the UK export market as our usual buyers in Spain and Portugal remain largely absent at this time.
Good growing conditions over the spring have contributed to higher-than-average yields and lower domestic prices as local supplies are seen as good at present. With commodity prices around the world at high levels, UK feed barley values for harvest are no exception and with good growing conditions across the UK currently, it looks like it could be an excellent year for barley producers in the UK.
Malting barley markets have been relatively quiet this week. UK brewers are reported to be working at maximum capacity as the weather improves and lockdowns ease across the UK. The focus is still definitely on UK beer demand which will hopefully remain strong. This is a welcome boost for the market after months of minimal business.
However, this easing of restrictions is yet to be reflected in new business as maltsters work through their stocks.
With UK barley crops looking generally well at the moment, growers should be looking seriously at locking into current prices, at least for a proportion of their barley production whether it be malting or feed.
Volatility continues in oilseeds markets with US soybean futures hitting levels not seen since May 14th on the back of aggressive fund buying and UK domestic prices bouncing up by over £30/t since the middle of last week. New crop Paris futures have gained €30/t over the same period. This activity reflects the mood of a market with low stocks and almost all forward projections seemingly relying on near-perfect weather and high yields. There is likely to be an atmosphere of nervousness should weather forecasts take a turn for the worse.
Despite a recent dry spell in North America at the start of the month, there seems to be no imminent threat to crops. However, hot and dry conditions are forecast for the next five days in the northern plains and the Canadian prairies. With soil moisture reserves low, particularly in the Dakotas, traders will be anxiously looking for more rain on the spring crops as we move into mid-June.
Next Thursday will see the release of the USDA's June WASDE report. This is the next key event for markets and it will be interesting to see if the USDA has made any changes to its US spring planting numbers. There is a feeling that these figures will be left unchanged which would mean seemingly low demand figures will also remain unchanged. This would leave year end stock numbers just above the minimum levels needed to enable an orderly transition from one season to the next. The last USDA report included estimates for near-record yields for the forthcoming bean crop, which is something that the market now desperately needs.
There are very few trades to report for pulses this week. However, there are still a few large parcels of old crop beans left unsold on farm. Buyers have withdrawn as recent grass growth has switched off further compounder buying and the extruder businesses are well covered through to the end of July. New crop has also ceased trading as buyers struggle to follow the volatility in wheat markets that underpin bean values.
There has been some interest in new crop green peas this week, with some cover taken that reflects ex-farm values, which are now below £250/t. However, even with most crops looking exceptionally well, growers will not commit to sales until the actual crop is harvested and the quality known.
Suppliers withdrew from the market just before the bank holiday and returned this week, reflecting higher global prices. 33.5% AN values increased in Europe by €15/t at the start of this week, followed in the UK by CF Fertilisers and Yara. Both companies are offering August and September prices at a £10/t increase over the June/July start price.
Imported ammonium nitrate remains tight in supply for the UK as producers support the higher priced European markets.
Urea is still firm and demand is still present from India and South America. This week, India only covered 580,000 tonnes of its 1.2 million tonne requirement, so the country is set to return for another tender soon, which will keep prices up. Replacement prices for the UK would now be at £355-365/t.
Advice remains to look at your 2021 ammonium nitrate crop requirements now for August or September delivery while the UK is effectively at a reasonable discount to other markets. The gap will start to close soon.
As reported last week, the recent market focus has been on nitrates, but it's necessary to keep one eye on other markets that are also increasing. Potash has been flat for the last few years and is now moving on from its 7-year lows and with some projected pace. Phosphates have already increased with DAP hovering close to the £500/t mark. It's now a good time to discuss options with your Frontier contact.
Get in touch
As a subscriber, you’ll receive email alerts each time a new blog is published so you can always stay updated with the latest advice and insights from our experts