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Frontrunner - 8th January 2021

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WHEAT

  • Agricultural markets start 2021 with a bang

World grain markets have started the new year with sharp gains, led higher by US soybean and corn futures. Prolonged dry weather and a rainfall deficit for developing corn and soybean crops across both Argentina and Brazil are raising concerns that yields will be adversely affected amidst strengthening export demand, particularly from China. Chicago Board of Trade (CBOT) corn and wheat futures rallied to highs this week not seen since 2014 as speculative funds continued to buy and established record-long positions. Price gains for corn futures have reached 50% since the summer.

Private estimates already see Brazil and Argentina corn production 10 to 15 million tonnes below the United States Department of Agriculture (USDA) December estimates and, with less corn available and prices rising, demand and values for wheat are rising too. The Argentinian government suspended corn export sales until 1st March 2021 and industrial action by port workers further disrupted trade flows for the world's third largest corn exporter.

Next Tuesday, the USDA will publish its January World Supply and Demand Estimates (WASDE) report which could prove to be very bullish if production estimates for South America are cut significantly.

  • DEFRA lowers UK wheat crop production estimates

Just before the festive break, the Department for Environment, Food and Rural Affairs (DEFRA) published its final 2020 UK wheat production estimate. Falling more in line with many trade estimates, total production is now seen at 9.66 million tonnes; down from its previous estimate of 10.13 million tonnes. This highlights an even greater import need to meet the UK shortfall before the 2021 harvest arrives. This, coupled with very strong world markets, has driven feed wheat values across the country to £200/t. However, with the Brexit deal now in place, sourcing wheat imports from the EU can continue very much as it has been so far this season as the fear of tariffs has been eliminated.

  • EU wheat export pace accelerates

This season's wheat exports from the EU to the end of the year reached 12.86 million tonnes compared to 15.11 million tonnes for the same period last season. During 2019/20, EU wheat exports totalled 34.7 million tonnes with shipments reaching almost 20 million tonnes for January to June 2020. The total available to ship this season is less than 25 million tonnes and half of this has already been achieved, which leaves EU stocks at a bare minimum; last season's pace cannot be replicated. This highlights how the EU needs to ration export demand and effectively price itself beyond export competitiveness.

Russia will introduce a wheat export tax from 15th February which could push additional demand to the EU. Conversely, Australian wheat production will reach almost 35 million tonnes compared to just 15 million tonnes last year. With such a significant surplus, Australia will provide strong competition for export markets during the second half of the season.


BARLEY

  • No new tariffs is positive for barley market

It has been a busy week in the feed barley market following the news of tariff-free barley trade with Europe. The market has been well supported with demand from the near continent. Feed barley remains good value for buyers compared with wheat and, with discounts from £50/t in many areas of England, barley will continue to find demand and maximum inclusion in feed rations.

  • Malting barley demand continues to be poor in wake of new lockdown

The malting barley market this week has been quieter. The good news of continued export trade has been well received. However, demand is muted as the industry continues to struggle with the ongoing Covid-19 situation. The news of another national lockdown in the UK has done little to build confidence and forecasting when demand in both the brewing and distilling sectors will return to normal remains challenging. It looks like the slump in demand is likely to continue well into the spring and beyond.

  • Frontier contracts offer guaranteed minimum premiums

Looking forward, it is important to keep in mind that although the 2021 spring barley crop will be significantly smaller than crop 2020, it is likely to still be sizable and above the five-year average. With demand uncertainty, protecting the malting barley premium looks to be a prudent decision for growers. Frontier is offering a range of guaranteed minimum premium contracts, providing growers with a low-risk and flexible approach to malting barley marketing. Please speak to your farm trader for more details.


OILSEED RAPE

  • Global markets hitting new contract highs

Domestic prices have jumped £12/t since the last Frontrunner report, driven up by a combination of factors on world markets including China's continued push for food security, dwindling US stocks of soybeans and growing concerns about the size of the South American oilseeds harvest which has been ravaged by dry conditions. US soybean futures markets have hit new contract highs in each of the last 13 sessions and Paris rapeseed futures have gained €15/t in the past week. Technically, markets are overbought, but there are no signs that the higher prices are managing to ration demand. It's too late to halt the pace of US bean exports and the US remains the only possible origin for further supply of beans in the short-term. Next week's USDA WASDE report will make for interesting reading, but the reality is that the US will run out of beans if its current pace of crush volumes and exports is maintained.

  • Attractive new crop prices

New crop rapeseed prices have been firming recently but at something close to half the rate of increase seen on the old crop. This currently leaves prices at about a £20/t discount to old crop levels. Although we anticipate a drop in UK rapeseed plantings for harvest 2021 of close to 20%, this trend is not being mirrored in the rest of Europe. The EU and UK planted area is seen as rising by 4% overall which, when combined with a slight yield improvement, could give us an additional one million tonnes of EU production. We know already that the UK's crush capacity will far exceed our production, pushing domestic prices up to match the cost of imports. An even smaller crop can't get prices beyond the point of 'import parity' and, for this reason, some locking in against the current attractive new crop levels may be a good strategy. Accepting the discount against spot markets is the difficult part.


 PULSES

  • A slow pulse market

The UK pulse market has shown a slow start to the new calendar year with values now lagging well behind the excitement of other markets. Being halfway through the season, buyers of feed beans are reluctant to start using beans in rations, especially due to the lack of storage bin space at most compound feed mills. There is a little more interest from buyers later in the season, April to August, but these are difficult months to supply, with most growers wanting their beans sold and off farm.

  • Attractive new crop bean values

New crop bean values are now looking much more attractive. With the Frontier buyback contracts linked to wheat futures, values have risen over £6/t since late December. Please contact your local farm trader for more information on these, as well as our forward pool contracts.


 FERTILISER

  • Nitrogen

As we said goodbye to 2020, late buying interest started to move prices upwards. Brexit was always a concern, with blenders and shippers trying to get every last tonne in the shed prior to 2021. As we now know, a Brexit deal was achieved resulting in very little change in nitrogen values as there were no new tariffs. Algerian urea is one of the only imports that will attract a duty of 6% going forward. Some early January issues were always anticipated, even with a deal, and granular urea (excluding Algeria as a supplier) has firmed. Egypt is the second major UK supplier of granular urea and the country is seeing high demand from elsewhere in Europe, with prices increasing in the last few days by around $20/t. Supply is also limited to late February through to March, which makes it unattractive to the UK as product will be required before then.

Ammonium nitrate terms were pulled pre-Christmas and since then, gas prices used to make ammonia have rocketed upwards from 40p to 60p per therm in the last three weeks. This will inevitably push nitrogen prices higher this spring.

  • Phosphate and potash

2020 concluded with higher demand for phosphate as the phosphate market started to firm. Blenders and shippers took cover but at higher numbers than in the summer and autumn. This trend has continued with TSP now appearing £30/t higher than late summer. Demand will continue to drive prices as some blenders are already talking about February as the next available production slot for new orders. MOP is also looking firmer but only in the region of £10/t. Spring demand, with a much higher planted area than last year, will drive prices higher; hopefully, with minimal Covid-related issues. However, this could have a knock-on effect with some spring imports arriving from the most Covid-affected areas in Europe.


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.


Frontrunner - 15th January 2021
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Thursday, 28 January 2021

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