Frontrunner - 4th March 2022

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WHEAT

  • Conflict drives prices sharply higher

Wheat markets have been extremely volatile this week due to the escalating conflict between Russia and Ukraine. London old crop wheat futures hit a high, which was more than £50/t above last week's closing prices, and in doing so set a record high for the market. US Chicago Board of Trade (CBOT) futures climbed up by over 30% to their highest figure for 14 years, although remained below the all-time highest figure of $13.49/t which was set in February 2008. The strong price gains for US and European markets reflect expectations for notable increases in export demand, as Ukraine closed its port facilities and therefore access to its wheat and corn supplies. Ukraine was expected to ship at least a further six million tonnes of wheat before the end of the season and sanctions against Russia add to the challenge major wheat importers now have to meet their needs. This was highlighted by a tender held by Egypt earlier this week, which so far this season has sourced 80% of its wheat imports from Russia and Ukraine. The country received just three offers and with the current high prices, General Authority for Supply Commodities (GASC) cancelled the tender. Later, Egypt's supply minister said they had strategic supplies for four months which, if true, will see them to their domestic harvest.

  • Scope for additional EU export demand?

It is expected that wheat import countries will look to the EU to replace Ukraine and Russia as suppliers but this has not yet shown itself in the official data. EU weekly wheat exports published by Brussels took shipments up by only 212,000 tonnes on the week to a total of 17.890 million tonnes. This total lags behind last year's pace by 350,000 tonnes. Last month, analyst Strategie Grains cut its EU wheat export estimate by 800,000 tonnes to a total of 30.4 million tonnes. This highlights competition from Black Sea supplies and how quickly circumstances have changed. However, the EU is also a major corn importer, estimated to need almost 15 million tonnes this season. To date, just under 11 million tonnes has arrived and over half of it is from Ukraine. With Ukraine now unlikely to be able to ship any more corn to the EU this season it would seem likely that more wheat will be used in animal feed rations, reducing the remaining available exportable surplus.

The US shipped 406,138 tonnes of wheat last week, taking the cumulative total up to 15.485 million tonnes from an estimated United States Department of Agriculture (USDA) surplus of 22 million tonnes. The USDA sees US year-end stocks falling to 17.63 million tonnes, which will be 5.4 million tonnes down on the year.

  • Longer term solutions

There are not just immediate solutions needed to meet export demand. With Ukrainian and Russian wheat and corn supplies unavailable, there are also increasing questions about 2022 harvest prospects. For Ukraine, it is not clear whether farmers will be able to drill spring crops and apply fertiliser and other inputs to its winter crops. With production looking lower, EU members are asking if set-aside land could be brought back into production to boost EU supplies of wheat, corn, other grains and oilseeds. Waiving the set-aside rules could increase the cultivated area by 10/15% and there have also been calls for aid to help farmers with soaring fertiliser costs. 


BARLEY

  • Domestic market reacts to conflict

The feed barley market in the UK continues to react to the conflict that endures in Ukraine. Domestic feed barley has followed wheat values upwards, with price rises of around £30/t in the last week. Feed barley demand remains steady as consumers look for supplies for springtime. It feels that significant cover is still needed by pig producers, which are already squeezed by tight margins and uncertainty around demand that has existed for some time now. The continued wet and cold weather in the UK is also likely to extend the winter feeding season for some time yet, adding to the demand for feed grains.

  • Stable malting barley market

The UK malting barley market remains very quiet, as most consumers have adequate cover for this season and remain hopeful for cheaper new crop supplies. The market currently revolves around very limited trade shorts that occur now and again. On the malting barley export execution front, this week reports have been received of vessels with ownership links to Russia being turned away from UK ports as sanctions start to come into effect. This is likely to cause some disruption to malting barley movements in some areas in the short term.

  • Feed barley values rise

With regards to new crop barley, we have seen feed barley values rise around £20/t in the last week. This is less of a rise than in the old crop but still a reflection of the uncertainty that exists in world grain markets at the current time. The new crop malting barley market lacks liquidity as both producers and end users wait and watch. Recent weather patterns across Europe have had an impact, with dry conditions persisting in the south and wet conditions now starting to delay early season fieldwork in the northern areas, including much of the UK.


OILSEED RAPE

  • Scramble for supplies

We have seen further turmoil in markets this week as traders and consumers struggle to come to terms with events in Ukraine. Paris rapeseed futures have surged by over 16% over the last two weeks, with physical UK prices up by around £70/t. Global food markets were simply not prepared for a conflict in this particular region because it is very critical to supply security. Vegetable oil stocks in key importing countries have decreased in recent months, owing to the postponement of purchases in view of high prices and insufficient export supplies. Sunflower oil supplies are a particular problem due to Ukraine producing around 35% of the global supply, but other oilseeds are also under pressure as consumers scramble for alternatives.

  • Growers facing difficult markets

The cropping decision for spring acres in the US and other Northern Hemisphere countries is expected to intensify over the next few weeks. Corn and wheat prices have been appreciating more quickly than soybeans in recent days, though it is reasonable to assume that US farmers will be aiming to maximise plantings of the major crops this year. However, Russia is a major exporter of gas and fertilisers, making a new round of increased input prices highly likely. Some farmers now are looking to link the timing of product sales with input purchases given the price volatility in both. In the past, the damage from getting one of these wrong, or maybe even both, has been manageable but in the future, getting on the wrong end of these markets could add to difficulties on farm.

  • Food or fuel?

The well-respected Fryer's report this week commented that 'the world is one bad growing season away from disaster'. According to the USDA, the world produces and consumes around 215 million tonnes of vegetable oils and about 20% of that goes into biofuels. This amount of biofuel is equivalent to 1% of world consumption and has raised the question of whether governments will look to divert more oilseeds back into the food sector. Based on the statistics, by doing this the beneficial effect on food supplies has the potential to be greater than a negative impact on the energy sector. As it stands currently, the ongoing implications of high prices and food shortages could be significant and especially notable in poorer countries.


 PULSES

  • Old crop bean market rallies while new crop follows wheat

After three months of relatively stable values, the old crop bean market has started to rally as a few consumer compounders see old crop beans a better source of energy and protein than other ingredients. With rapeseed meal at £340/t delivered and soybean meal now approaching £500/t, these high protein products are beginning to look expensive compared to beans.

New crop bean values continue to follow the wheat market but at the current high levels nothing is trading, as buyers are unsure whether to take any cover and sellers are more concerned that the value may be £10 higher next week. 


 FERTILISER

FERTILISER

  • Urea/AN

Following a recent lull in purchasing activity in the market, CF Fertilisers released new nitrogen terms for March delivery this week. This did encourage growers to cover their AN requirements, however, it was short lived with terms withdrawn 24 hours later due to the surge in gas price. At the time of writing, the gas price has hit £4.01/therm, an increase of 78% in a week.

Urea continues to firm on the back of lack of supply out of Russia and China, but also with greater demand into South America. We have seen global prices increase steadily since the back end of February and this trend looks set to continue.

The recent increase in the grain price warrants another look at your fertiliser breakeven ratio and the associated impact on this year's nitrogen rates, as more than ever it's very important to make the right decisions.

Some growers are considering saving some of this year's well-bought fertiliser to reduce next year's fertiliser bill, which seems logical, but it may cost them over the two years. This is because the saving next year may be outweighed by the lost income of this year from a lower application of nitrogen. In a replicated trial last year, saving 50kgs/ha of nitrogen reduced the yield by 0.77t/ha. This resulted in a reduced income of £114/ha, valuing wheat at a reasonably conservative £200/t.

Taking that saved fertiliser into next spring would reduce the average nitrogen price by 40p/kg or £60/ha for a 150kg/ha rate, assuming £2/kg of nitrogen for the other 100kgs/ha is purchased. The net result in this example would be a loss over the two years of £54/ha. Clearly the level of yield loss, value of this year's grain and next year's nitrogen will influence this calculation, but it is far from a straightforward decision. It could be safer to maximise this year's returns rather than second guess future values.

  • Liquid/UAN

Another stop-start week with UAN applications. This is now making the spring delivery window shorter will increase the intensity of deliveries once we get going.

UAN supply into the UK market is about availability and in the current market, offers of tonnage are very limited going forward and are being monitored daily.

  • PKs

Phosphates, in particular DAP, have fallen victim to further supply issues as vessels destined for the UK are now being halted. This is primarily due to the Russia/Ukraine conflict and increased demand from India. Supply of DAP will remain tight in the UK for the foreseeable future, therefore, it's advised that farmers look at their outstanding requirements. The lack of supply of phosphates from China and Russia equates to losing close to 50% of all global exports.


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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