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Frontrunner - 5th February 2021

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WHEAT

  • Record US corn sales

Last week's Frontrunner reported China making significant purchases of US corn. China bought over six million tonnes, which helped take total US weekly corn export sales to 7.44 million tonnes for the period up to the 28th January. This is a record high, doubling the previous weekly high set back in 2012.

The United States Department of Agriculture (USDA) estimates that US 2020-21 exports will reach 64.77 million tonnes, which will leave US ending stocks nine million tonnes down on the year at 39.42 million tonnes.

However, the US has now sold 87% of this estimated available surplus with seven months of the season to go and with the next crop still sitting in the seed bag. Adding to this bullish situation are reduced corn production estimates from South America. Adverse weather has led the Buenos Aires Grain Exchange to lower estimates for Argentina by one million tonnes to a new total of 46 million tonnes. Similarly, the USDA Foreign Agricultural Service has lowered its estimates for Brazil to 105 million tonnes, compared to the January USDA estimate of 109 million tonnes. This change should be reflected in next Tuesday's World Agricultural Supply and Demand report from the USDA.

  • Russian wheat export taxes

The prospects for Russian wheat export curbs have been a primary driver for rising world wheat prices in recent weeks. The Russian government is determined to prevent continuing inflationary price pressure for its domestic wheat products and sees taxing exports as the solution. From the 15th to 28th February, a €25/t tax will apply. That tax will increase to €50/t from the 1st March to 31st May. What might happen after this date remains uncertain. However, this week, the Russian Minister for Economic Development said that a formula-based tax will apply from the 2nd June. This tax will be 70% of the difference between a base price for wheat and $200/t. The base price will be set based on Moscow Exchange calculations.

The impact this new tax will have on world markets is unclear, but in the short-term, it could be bearish if it encourages Russian farmers to sell their wheat ahead of its implementation. However, in the long-term, there seems to be little incentive for Russian farmers to maximise their wheat production when other crops may prove more profitable. Russian spring drilling activity will be watched closely.

  • Egypt back in the market

With world wheat prices falling this week, Egypt took advantage, holding its first tender since 15th December for delivery between the 15th to 30th March. This coincides with the increase in the Russian wheat export tax, rising from €25/t to €50/t. However, even allowing for this tax, Russian-sourced wheat provided two of the most competitive cargoes offered.

Egypt bought a notable 480,000 tonnes at an average price of approximately $311.50/t including freight costs. Reflecting the rapid rise in world wheat prices, this was $29/t above the previous tender. Russia sold 120,000 tonnes and Ukraine and Romania sold 60,000 tonnes each, but a lion's share of 240,000 tonnes went to France, albeit with a 70 cent premium to the other sales.


BARLEY

  • Decline in UK feed barley values

UK feed barley values have drifted lower this week, but the market was fairly inactive, lacking farm interest in both buying and selling. With export prices falling in some parts of the UK, the highest price for feed barley has now shifted from export port bids to domestic feed barley homes in the north and west. New crop feed barley trade has also been thin this week, with narrower discounts between feed wheat and feed barley doing little to tempt consumer buyers to take feed barley cover.

  • Surplus of barley to export

The UK has had a decent feed barley export campaign to date, but even with the sizable increase in domestic feed barley usage due to the relationship between feed wheat and feed barley, the UK still has a significant surplus of barley left to export. With the domestic market having only a finite demand due to barley being maximised in rations, the spread between domestic and export prices is likely to narrow in the later part of the year. With new crop values trading at a large discount to old crop prices, there is no incentive for either farmers or merchants to carry feed barley into new crop.

  • Pessimistic predictions for malting barley

The malting barley market remains dominated by the impact of the coronavirus pandemic and the impact it is having on brewing and distilling demand. Forecasting remains extremely difficult, but many in the industry are already predicting that restrictions on the hospitality sector could still be in place next winter. Some may consider this an overly pessimistic view, but there seems to be consensus in the industry that the critical summer beer demand will be considerably below average.

2021 malting barley demand will be significantly impacted; the only unknown is to what extent this will be. In this climate of demand uncertainty, we continue to advise growers to recognise the value of protecting the malting barley premium.

Frontier is currently offering a range of guaranteed minimum premium contracts for both winter and spring malting barley. These schemes are a flexible risk management tool that protects the malting premium while also giving growers the flexibility to hedge their feed barley base price at a time of their choosing.


OILSEED RAPE

  • Strong sterling

It has been a fairly dull week of trading for oilseed rape, with markets looking to post modest losses on domestic markets, mainly as a result of a firming sterling. Sterling has appreciated by just over 1% against the euro since the end of last week, which makes the imports that home-grown supplies are competing against cheaper by around £4/t.

Agricultural commodity markets have been more turbulent in recent weeks, but the oilseeds sector is showing remarkable resilience.

  • EU rapeseed oil exports booming

In a year when the European rapeseed supply and demand balance is heavily in deficit, it is perhaps surprising that total EU rapeseed oil exports to countries outside the EU have increased substantially during 2020/21. In recent years, EU oil exports have been fairly consistent at around 50,000 tonnes per quarter, with Norway generally taking more than half of this volume.

It was noticeable that China stepped up its EU purchases over last summer and, in the current quarter, the country looks set to take in the region of 180,000 tonnes of shipments. With volumes as average to the other EU export destinations, the January to March total is on course to hit 250,000 tonnes; a massive jump from the average of 50,000 tonnes and a key reason why local prices are holding firm.

  • Brazilian woes

In the wider global market, traders are awaiting the release of the February World Agricultural Supply and Demand Estimate report from the USDA which is due out next Tuesday. There has been a feeling that recent reports have overestimated US soybean stocks and South American crop potential while underestimating year end US export volumes. It will be interesting to see if the report goes some way to resolving these issues. What is certain is that the US is currently the only major player when it comes to supplying China with soybeans. The usual transition from US supplies to Brazilian has been delayed by the late harvest in Brazil, resulting in January export volumes dropping to a 14-year low. February vessels, estimated to be looking for 11 million tonnes of beans, are lined up, but wet weather is delaying harvest in some areas of Brazil and there is a looming truck strike to add into the mix. None of these circumstances would seem to indicate a sell-off in US markets in the short-term.


 FERTILISER

  • Urea/nitrates

Global urea values remain the driving force in the market this week, with weekly offers increased by a further $20/t from previous sales. Egyptian bulk is being quoted at $380/t for March. Once costed into the market, delivered farm values can be expected to increase between £10-15/t in bags. This will maintain the upward momentum on ammonium nitrate values for a few weeks. Considering there is currently little urea in the UK, growers will have to look at domestic and imported ammonium nitrate as a replacement, putting pressure on supplies and timeliness of applications.

  • PKs

DAP values continue to climb dramatically and current import values are around $580/t upon landing. By the time labour, bagging and haulage are taken into consideration, along with exchange rates, this would put future values on farm around £30/t above current UK levels.

MOP is the most stable product in the portfolio, having shown a slight increase week on week. A further £5/t price rise can be expected. Growers are advised to look at their requirements and order as soon as possible.


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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