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Persistent dryness across many of the primary corn growing regions of Brazil is continuing to stress late drilled corn crops and impact their yield potential. In April, the estimate from the United States Department of Agriculture (USDA) for the Brazilian corn crop was at 109 million tonnes, but analysts see the lack of rain taking at least nine million tonnes from that crop potential. If the dryness continues, there are concerns that the crop could fall to as little as 90 million tonnes. These significant losses amidst increasing Chinese buying will push additional demand to US supplies, with the US exportable surplus already sold out. This has encouraged increased speculative buying and seen Chicago Board of Trade (CBOT) corn futures rise by over 40% since the end of March. CBOT corn futures have risen to their highest level in eight years and for the first time since July 2013, the near contract position has overtaken wheat.
In contrast to South America, Ukraine has experienced beneficial weather for both winter and spring crops which is leading analysts to increase their 2021 production estimates. Both wheat and corn have the potential to rise to record levels. Wheat could reach 28.6 million tonnes; up from 24.9 million tonnes in 2020. Corn could reach 36.6 million tonnes, which would be significantly higher than production this season which the USDA sees reaching 29.5 million tonnes. This would boost available supplies for export markets. The rain has been appreciated by farmers across much of Northern Europe this week and will help crop development where dryness has been an issue. However, weekly winter wheat crop condition ratings in France slipped two points in the week to 79% rated 'good' to 'excellent'. This is still well ahead of the 57% that received this rating last year.
Increased Chinese demand for corn has been a primary market driver since the beginning of the year. Analysts see the country's import need increasing to 28 million tonnes compared with just 7.6 million tonnes last season. There are varying views on whether this level of import demand will be seen again next season and the volumes bought will impact on world prices. This week, China expects its domestic corn production to rise by 4.3% on the year up to 272 million tonnes. Next Wednesday on the 12th May, the USDA will publish its World Agricultural Supply and Demand Estimates (WASDE) report and reveal its first predictions for 2021/22.
As dry conditions in some areas of both North and South America continue to drive world market sentiment with the potential for lower yields of both wheat and corn, barley maintains higher prices again this week. The old crop barley market has also benefitted from a lack of supply in many areas of the UK. Barley usage in animal feed remains high. March figures released by the Agriculture and Horticulture Development Board (AHDB) for Great Britain this week show usage of barley is 48% higher than in March 2020. Crop year figures show usage is 41% higher than in the same period last season. At the current rate, barley usage in animal feed production could reach two million tonnes. This week, there has been a renewed interest in UK export barley for May and June from buyers in the Netherlands, which could further tighten the UK barley supply and demand situation for this year.
This week's rain across much of the UK and northern Europe has come at a convenient time for both winter and spring barley crops. With more rain in the forecast for this weekend, the potential for an average UK barley crop looks more likely, although some areas have not had the amount of moisture that growers would prefer. With recent cold conditions across much of Europe, harvest is behind with time still for plenty of unpredictable weather to affect the crop.
New crop barley prices for feed and malting barley are currently appealing. Growers are encouraged to lock in prices for at least part of their crop, especially if harvest movement is required. Leaving the marketing of winter barley until combines roll is a high-risk strategy, particularly as we see an increased area of winter barley in the UK for this coming harvest.
With many futures markets including US soybeans and Paris rapeseed finding new contract highs this week, it is clear that persistent demand in global oilseeds markets is continuing to pull price levels upwards. For the next few months, until supplies from the 2021 Northern Hemisphere harvests begin to kick in, there may not be a major reversal of recent trends. Stocks levels in exporting countries are low and many countries are ramping up demand for biofuels. China, in particular, is attempting to build stocks of agricultural commodities. While this is ongoing, it is evident that high prices are not rationing demand fast enough into the food sector.
New season domestic rapeseed prices have jumped by another £25/t in the last week, which has prompted an unusually high level of interest in forward selling, despite new crop trading at a £35/t discount to old crop supplies. Current weather projections suggest that if the world experiences 'average' weather in 2021, then production of all vegetable oil globally will exceed consumption, thereby allowing for a modest rebuilding of stocks. If this is the outcome, then forward sales of rapeseed at the current historically high levels will prove to have been a good tactic.
Focus now shifts to next week's USDA WASDE report, which is scheduled for release next Wednesday. It is expected that the report will highlight the lowest US stocks-to-use ratio for soybeans ever declared in a May publication. It is also expected to announce that current weather conditions in a number of key supply countries, including the US, will be supportive to markets in the short term. High prices will encourage extra acres and finance investment in crops to maximise yield potential even if the weather is unpredictable.
Markets are signalling that a greater oilseeds supply would be a benefit, allowing world oilseed stocks to be rebuilt from the current low usage level of 18.4% back up towards the 23.2% of two years ago.
Old crop markets on both peas and beans are now starting to slow down with consumers securing most of their cover up until new crop supply appears. This leaves feed beans below the £210/t ex farm mark.
New crop markets are extremely dependant on the progress of crops planted. Pulse crops should benefit from the rain seen across most of the UK this week. However, it is possible that the prior cold drought may have put a cap on their end yield potential.
As we see more potential warmth over the coming weeks, it will be important to assess how the crops react. Until the trade sees some solid information on crop condition, there will be minimal new crop trade, making rough values very challenging to provide.
Rain fell over the bank holiday weekend and crops have started to move. Warmer temperatures would be beneficial, especially given the rising gas and energy prices. This time last year the UK saw very different conditions; very high temperatures combined with low gas and energy prices. Historically, there would be conversations at this time about new season nitrogen prices, however the market is currently very quiet. There is anticipation to see what India does with its next tender due to be concluded today, 7th May 2021.
The market is expecting higher demand from India due to world crop prices with some disruption around shipping conditions due to Covid-19. Granular urea has fallen from last month's highs but offers would still equate to over £310/t on UK farms. UK nitrogen suppliers are watching energy, ammonia and urea prices which are impacting finished product prices.
These raw material increases are causing concerns for new season prices. This week has seen some price increases for nitrogen, nitrogen sulphur and NPKs from today for the current top-up and grassland markets.
Replacement stocks of phosphates (DAP/TSP) are still firm on the world market and potash is now starting to move slowly upwards. There is no decrease in PK pricing as we move into the summer and autumn markets. These high prices could be here through until next winter or potentially longer.
Grassland grades are all available for immediate movement. Speak to your Frontier contact for more information.
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