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Frontrunner - 7th February 2020

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WHEAT

  • China playing a pivotal role in wheat markets

World wheat markets have managed to achieve modest gains this week, supported by ongoing strong international export trade but lacking any fresh price drivers. Futures remain a good 4% below their January highs. China remains a primary focus, with the combination of their wheat buying activity, the coronavirus outbreak and their trade deal with the US creating a recipe of uncertainty.

Following the signing of 'phase one' of the US/China trade deal, US traders expected to see a wave of wheat buying activity as China began their obligation to purchase US agricultural products. However, this week White House officials stated that the outbreak of the coronavirus is likely to delay the implementation of China's buying programme. Thoughts are that China is committed to buying up to 9 million tonnes of imported wheat in the 2020 calendar year, even though this has only been around 3 to 4 million tonnes in previous seasons. However, the coronavirus is not preventing China from buying wheat from other origins and supporting EU markets. So far this season, EU countries have shipped 950,000 tonnes of wheat to China, with reports of a further 6 to 12 French cargos being sold to China this week. Commercially this would make sense, with French being the cheapest world wheat as a result of the weakening euro. During January, French ports shipped their biggest monthly volume of wheat for six years despite logistical challenges caused by strike action. It is interesting to note that China also recently bought Australian and Canadian wheat.

  • Russia advances on French territory

Expanding its position as the world's primary wheat exporter, Russia has been targeting fresh market opportunities. In the firing line has been Algeria, which historically has been almost exclusively a French wheat market.However, it is reported that Russia has achieved preliminary approval on wheat tests from Algeria, and it will no doubt push to compete with France at the earliest opportunity.

This week also saw the Institute for Agricultural Market Studies (IKAR) cut its Russian 2019/20 wheat export estimate from previously 33.5 million tonnes to 32 million tonnes – well below the Ministry of Agriculture of the Russian Federation, which maintains 36 million tonnes.

  • Wheat drills busy

A rare settled spell of UK weather allowed farmers to progress land work this week and importantly drill winter wheat in some areas. Drilling on anything other than light land was still reported to be extremely challenging, but without doubt some progress has been made. However, with storms and more heavy rain forecast in the near future, the window of further opportunity is closing. Some observers are suggesting the total UK wheat area will be lower than last year by as much as 25%. Furthermore, with many areas planted in difficult conditions, yields will also be well below average. We expect the Agriculture and Horticulture Development Board (AHDB) to update its 'Early Bird' survey later this month and provide better understanding of the UK combinable crop landscape for 2020 harvest.


BARLEY

  • UK barley exports continue to lead the way

The UK still has a sizeable exportable surplus to clear. To stand any chance of clearing this, UK barley will need to be competitive against other origins. The good news is that, for now, we are competitive and growers should take advantage of current values as they may come under pressure later in the season. UK barley has recently attracted demand due to logistical challenges in France caused by various strikes. The French also have a sizeable surplus to clear and they are likely to offer more aggressively later in the season to clear their surplus before other origins start harvest.

  • Feed or malting barley?

Old crop malting premiums have now eroded to a level that makes virtually all barley, regardless of quality, more suitable to move as feed rather than malting. The domestic maltster is well covered for the season, with the only demand appearing from merchant shorts covering old sales when parcels are rejected due to quality issues. Likewise, European buyers are well covered and the export malting premiums are at such low levels compared to large vessel feed barley, that there is little incentive for either merchants or growers to take on the extra risk of selling malting barley.

  • Know your market!

As spring barley drilling begins in eastern England, the debate around the size of the UK wheat crop and subsequent spring barley crop rumbles on. Regardless of the exact numbers, we will almost certainly have a larger spring barley area year-on-year, and the uncertainty of what sort of trade deal will be struck with the EU is firmly back on the table. With this in mind, it is important that growers target an appropriate market when making decisions about spring barley and how to grow it. As the market stands today, pushing for extra yield and growing for the feed market seems to be the sensible option for growers that are not in the main malting barley demand areas or are without a malting contract. Compromising on yield and then discovering that there is no malting premium certainly does not appear to be the most profitable option! 


OILSEED RAPE

  • Calmer markets

Domestic old crop rapeseed prices are now back to where they were at the start of December, having hit a peak on January 14th when they were £24 per tonne above current levels. This week's trading has been much more subdued, with crop sizes, stock levels and demand projections taking a lower profile while traders concentrate on the macroeconomic forces in play.

  • Coronavirus crisis continues

Top of the list is the continuing spread of the coronavirus and its affect on the Chinese economy. With significant parts of their manufacturing base in partial or complete shutdown, projections for growth are being scaled back and any reduction in growth rates has a significant impact on the wider global economy. Energy markets including crude oil have been in retreat, and stock markets traded sharply lower before some stability returned this week following Monday's announcement that the Chinese government would embark on a stimulus package to support markets.

  • Short-term pressure on prices

In the background, European traders continue to be concerned about the huge Brazilian soybean crop currently being harvested. Alongside this, prospects for a jump in US soybean plantings as Chinese tensions ease and the arrival of more imports into Europe which will leave crushers well covered for the remainder of this season are also causes for concern. Meantime markets seem happy to ignore the much tighter fundamentals that are heading our way in 2020/21.


 PULSES

  • Demand remains high for old crop feed beans

Old crop feed bean values continue to rise with increases in excess of £5/t in most areas. It appears the market will remain undersupplied as farmers with unsold beans retain their supplies due to the uncertainty over whether they will be used for planting in the spring. Evidently, markets cannot increase forever and there will undoubtedly come a point when the Egyptian buyers no longer regard UK feed beans as good value for money in comparison to the Australian supplies which are soon to arrive in Egypt.

  • New crop bean values

New crop bean values continue to follow wheat futures which is quite normal in the pre harvest situation. The Frontier bean buyback is still very competitively priced compared to the market and should be considered as part of growers' sales strategy.


 FERTILISER

  • Nitrogen

It has been another busy week with growers firming up nutrition decisions and buying their requirements to ensure that deliveries will come in time. 

The new month introduced new prices from CF Fertilisers at £2 over the January offer. All other suppliers are unchanged; however, imported products are starting to firm due to currency.

Urea prices have moved up on the international markets but there has been little effect on UK stocks.

  • P & K

DAP is approximately 15% higher internationally this week at $40/t following increased global demand and production restrictions affecting supply in China. The UK prices are only up by 8% at £20/t, so another rise in the UK looks likely.

TSP has not followed the DAP market but it appears that a slight rise is trying to be introduced, mainly due to exchange rates. 

Given the increase in DAP/TSP, MOP producers are expected to follow the markets up as demand increases across Europe.

With a weaker sterling, the costs of straights over the next few weeks will be higher.

Pressure on the supply system is starting to show as blending capacity fills up for February and haulage becomes tighter. Compound NPK products are readily available and should be considered.

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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