Frontrunner - 8th October 2021

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WHEAT

• New contract highs for wheat futures

Wheat markets continued to rise this week, supported by strong export trade and uncertainty over Russian wheat export capability. Paris wheat futures have set new contract highs, gaining over 10% in value since the 20^th September. So far this season, from 1^st July to 4^th October, Brussel's trade data showed the EU had shipped just over eight million tonnes of wheat. This was up by one million tonnes on the week and unofficial vessel counts suggests this is still significantly understated. In the same period last year, just 5.5 million tonnes had been shipped - albeit from a smaller surplus. Analyst group Strategie Grains estimates the EU will have 31 million tonnes available to export this season, which would leave end of season stocks at minimum levels. Therefore, the current pace is not sustainable and the rising prices need to choke off demand. Romania is the EU's leading wheat exporter, having now shipped 2.9 million tonnes from its record 11.4 million-tonne crop. At this time last season, had shipped less than 800,000 tonnes.

• Russian export quotas

Additional bullish market sentiment came from Russia where the Agriculture Minister suggested a need for further export deterrents, additional to the current export taxes. From 15^th February 2022, a quota limiting the season's wheat exports to a total of 31.5 million tonnes may be necessary. The United States Department of Agriculture (USDA) had predicted a slightly higher quota of 35 million tonnes. Russian domestic demand levels need to be assessed and adequate supplies assured to prevent further price inflation for bread and other flour products before an appropriate quota is set for all grains, as well as wheat.

However, in contrast and adding confusion, the Russian Union of Grain Exporters said Russia could ship up to 37.5 million tonnes of wheat this season. So far, 10.9 million tonnes have been shipped, which is 22% down on this time last year.

• Egypt buys Russian stock

This week, Egypt's state grain buyer GASC, the General Authority for Supply Commodities, tendered for wheat to be supplied in two periods during November. GASC confirmed the purchase of 240,000 tonnes and, despite export taxes, Russian exporters were able to make competitive offers and secured the sale for three of the four cargoes booked. Average prices for delivery between the 11^th to 20^th November, including freight, were almost $352/t; $7/t above the previous tender prices on 8^th September. No purchases were made for the tender from 21^st to 30^th November.

BARLEY

• Feed barley prices continue to track higher

The situation of pigs backed up on farm due to lack of labour at meat processing factories is adding firmness to an already firm market, considering that these pigs still need to be fed. Due to the absence of alternative raw materials, barley's discount to wheat has now shrunk to around £10/t compared to £15-18/t over the harvest period, both small discounts compared to the £25-45/t discount in crop 2020. Another factor driving barley's discount to wheat is the potentially high pass rate on malting barley varieties which is reducing the availability of feed barley. This dynamic is the opposite of last year when there was muted malting barley demand due to Covid-19 curtailing beer-drinking opportunities and very low pass rates being achieved on malting varieties.

• Malting barley premiums increase in England

Malting barley pass rates on paper are quite high and, in theory, would give an exportable surplus of around 650,000 tonnes, at least. This is unlikely to be achievable from the UK in 3,000 to 4,000-tonne vessels. By the end of October, the volume shipped will probably be a maximum of 65,000 tonnes. Merchants are fully aware of the logistical risks of having vessels waiting for lorries to arrive and the consequent slow loading charges that would then apply. This, and the fact farmers are slow to commit to selling malting barley, is preventing export sales being made in any volume currently. However, the UK is still competitively priced against other origins, meaning demand for UK malting barley is high. The highest prices now are for post-Christmas, as merchants are reluctant to add further logistical risk by making sales in the run up to the festive period. Consequently, a lot of trading activity on malting barley can be expected if growers can keep the quality from deteriorating in store. If successful, growers can expect to receive a high malting premium of £40/t or more.

• Crop 2022 prices start to appear

There has been some trade over the last week as farmers could gain harvest feed barley values of £150-158/t ex farm, depending on location. In addition, the current buoyant market for crop 2021 malting barley has spilled over into crop 2022, when growers could secure £200-208/t ex farm depending on month and location of their supplies. The current price of fertiliser and sprays is likely to see an increase in spring cropping on some farms.

​OILSEED RAPE

• More contract highs for rapeseed markets

There has been another significant jump in rapeseed prices this week with values up by £25/t at their highest point, although the market has retreated a little for the time being. What is interesting is the apparent disconnect between global soybean markets and European rapeseed markets. In the past three months, Paris rapeseed futures have appreciated by almost 33% while over the same period Chicago soybean futures prices have fallen by 10%. This latter development has been due to several factors, including weaker than expected demand for US beans from China (which was down 30% in the last quarter), storm damage to export facilities in the US Gulf and increased optimism on US harvest bean yields. The USDA reported that adding 2.2 million tonnes to previous bean crop estimates in last week's stocks report gave a total crop figure of 144.75 million tonnes. All these factors combined to produce a bearish report for soybeans, with end August stocks set at a relatively comfortable seven million tonnes, which was far above most trade expectations.

• Short-term tightness

Soybeans are the largest part of the global family of oilseed crops and the US is the biggest player in world soybean exports. Each oilseed has its own supply and demand data, but it is normally anticipated that substitution between the competing oilseed stocks will generally keep individual markets moving with a high degree of coordination. This is clearly not the case currently with soybeans and rapeseed. What is becoming clear is that the easily knocked out demand for rapeseed has already taken place and markets are left with the remaining inelastic demand, which soaring prices is having little impact on. Upward pressure on prices is likely to continue over the next few months, whilst the impact of the devastating drought in Canada is felt. The key question will be whether the arrival of a possibly large Australian crop on world markets in the New Year will be sufficient to reverse the upward trend.

• Potential for large rapeseed crops for harvest 2022

At some point in the future, soybean and rapeseed prices will reconnect and start to move in unison again, but this might not be until harvest 2022. Over the coming months, how many extra hectares the high rapeseed prices have secured in the farmer's rotations around the world will become known. The process of monitoring crop conditions and looking at forecast weather patterns in the key producing nations will begin. That just leaves China's demand as the major unknown factor going forward.

 PULSES

• Market sees impact from external factors

The challenge of logistics, wet samples and minimal farmer selling continues to impact on the market, which still needs more beans to be supplied in the short term. Prices have risen £3-6/t this week as buyers need to get spot positions covered. Any long-term strength will need to be supported by a considerable volume of demand. However, there aren't any UK feed compounders showing much interest at current levels. There is still limited demand from the near continent for November and December but, beyond that, there are very few enquiries.

Human consumption beans are also in demand but transport issues in the UK, along with issues in exporting in containers or bulk vessels, are restricting the amount of business that can be done. 

 FERTILISER

• AN/Urea

Last week saw offers from several companies for a further Indian tender, with around 1.9 million tonnes offered in total, although it is understood that there was some double counting within these figures. However, it seems China committed around 700,000 tonnes against the Indian tender, which India has now purchased. This week has also seen China put in further restrictions on the exporting of urea, which will come into effect over the coming months. This news, combined with further cutbacks and shutdown of urea plants around the world are expected to keep urea prices firm in the UK and Europe.

Gas markets in Europe remain high and rose again rapidly this week, reaching the highest level seen, causing several more European fertiliser factories to stop production. Resulting in very limited offers to the UK market, and further driving the upward trend in nitrogen prices. It is reported that little business was concluded last week at the fertiliser conference in Lisbon due to traders being unable to offer product.

• UAN

As the gas price continues to surge ahead, the anticipated release of Spring 2022 UAN terms may well be delayed as suppliers look at ever tightening availability. There remains a strong demand for UAN, especially in this position.

Growers should look at their cropping plans and be prepared to commit volumes at the earliest opportunity, allowing the trade to cover their requirements. With many shippers now talking about 2022 arrival of fresh UAN cargoes in the first quarter, this doesn't allow too much flexibility between arrival and usage.

• PKs

Phosphate and potash prices continue to rise. There has been a further increase in prices this week on both products due to a tightening of supply worldwide.

Logistics is still a major issue and, coupled with the current fuel supply issues, it doesn't look like the situation is set to improve. 

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