Frontrunner - 10th September 2021

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WHEAT

• French wheat crop mostly feed

FranceAgriMer updated its French wheat crop data this week with changes that highlighted the poor quality of its crop. Domestic and export milling specifications demand that grain specific weight meets at least 76kgs but only 30% of the crop is estimated to have reached that standard. Such poor French wheat crop quality is unusual; last season over 98% of France's crop met the minimum 76kgs standard. The Hagberg falling number (HFN) is also an issue, with only 67% meeting the minimum 220 specification.

With up to 70% of French wheat only at feed standard, traditional UK feed wheat export homes will be extremely competitive. This likelihood has contributed to the additional negativity seen in UK wheat futures this week.

Similar to the situation in France, UK wheat has a low specific weight issue and it is highly likely the UK will have a surplus of feed quality wheat to export. Meanwhile, prices have fallen by 8% from their mid-August peak. The good news for farmers with quality wheat are the increased domestic milling premiums as feed prices fall lower.

• Upbeat Southern Hemisphere

Some of the Northern Hemisphere's leading wheat exporters have suffered adverse weather and significant cuts to their wheat output; Russia, the US and Canada are among them. However, timely rain for both Australia and Argentina is boosting the potential for Southern Hemisphere wheat crops. Earlier this week, the Australian Bureau of Agricultural and Resource Economics (ABARES) updated its estimates and now sees Australia producing a bumper wheat crop for the second consecutive season. ABARES increased its wheat crop estimate to 32.63 million tonnes, which is up from its previous June estimate of 27.8 million tonnes. Some private analysts see the potential for production to increase a further 2-4 million tonnes on this estimate to surpass last season's record 33.3 million tonnes.

In Argentina, the Buenos Aires Grain Exchange increased its country's wheat crop rating to 46% rated 'good/excellent', which is well ahead of the 37% three-year average and last season's 22%. Last season, drought cut the Argentinian wheat crop to 17.65 million tonnes but, this season, with more rain in the forecast, estimates for 20.5 million tonnes should prove achievable.

• Higher US corn yields?

This afternoon (Friday 10^th September, 2021 - 17.00, UK time), the United States Department of Agriculture (USDA) is publishing its September World Agricultural Supply and Demand Estimates (WASDE) report and potential for increased US corn yields has weighed on Chicago Board of Trade (CBOT) corn futures, seeing them fall to their lowest since the end of May.

In its August report, the USDA made significant cuts to its estimates, from 179.5bu/ac to 174.6bu/ac. However, subsequent beneficial rainfall has helped increase yield potential for much of the corn belt and analysts believe that this will be reflected in the USDA's September updates.

Further pressure for world corn prices comes from Ukraine, which expects a record crop of 39.3 million tonnes - up 9 million tonnes on the year. This will provide strong competition for exports to China where consumption of animal feed this season is seen three million tonnes below last month's forecast. This is due to low hog prices. 

BARLEY

• Barley's discount to wheat shrinks and so does demand

With weaker feed grain markets across the week, UK feed barley now finds itself at its narrowest discount of the season so far at around £10/t less than domestic feed wheat equivalents. At this level, UK compounder demand will switch in parts into feed wheat and out of barley which would change the domestic UK demand picture.

• UK feed barley exports off to a brisk start

Despite a later start to harvest this year, the UK has set out at a fast export pace with an estimated 300,000 tonnes set to be exported by the end of October, mainly out of the south and East Anglia – the primary exporting regions of the UK. Fresh export demand from Europe is limited but third country (countries outside the EU) demand does exist, with Algeria, Tunisia and Turkey all tendering for nearby positions this week, although these markets are expected to be supplied by the Black Sea region.

• Malting premiums increase across the week

With the drop in feed barley values this week, malting premiums have increased. The UK is continuing to see good pass rates across both Scotland and England as harvest nears its conclusion. UK supplies are competitive on the European market and with good pass rates domestically the market is seeing good two-way trade with premiums around £30/t in the spot positions and £35-39/t further forward. 

​OILSEED RAPE

• Markets find new contract highs

Rapeseed prices have once again found new contract highs this week, with prices £10/t up from where they were at the start of this month. Markets simply don't seem to be interested in the prospect of an all-oilseeds stock build at a global level during 2021/22 and are firmly focused on low season starting stocks. This is coupled with a feeling that demand is proving to be very resilient to higher prices.

It is also acknowledged that rapeseed supplies, in particular, will be tight throughout 2021/22. This will be especially true for Europe during the remainder of 2021 when the lack of supply following the disastrous Canadian harvest will be most keenly felt. The €8/t discount that February 2022 Paris futures are trading against the November 2021 contract illustrates the reality that European consumers are worried about pre-Christmas supplies but much more relaxed about the second half of the campaign.

• Bumper Australian crops

Part of the reason for the relaxed sentiment around the second half of the campaign is the improving prospects for the Australian crop. ABARES is now predicting a record-smashing crop of five million tonnes for Australia, which would represent a 20% increase on its June estimate. Larger crops are also reported in Belarus and Ukraine, the latter showing a year-on-year increase of 7% in output, which could help revive imports from the country. Ukraine saw a 33% drop for the first two months of this season to the lowest level for four years.

• Deteriorating prospects for Canadian production

However, it's the situation in Canada that remains centre-stage and which is the reason the markets continue to move higher. The last official crop estimates saw yields falling by 30%, but this was based on crop surveys undertaken in June and early July. Local reports, with just 10% of the crop harvested to date in the key production areas, suggest that yields will be down between 35-40%, possibly more. The next StatsCan report is due out next week but, for the wider oilseeds complex, the focus is on the release of the USDA's September WASDE report which may shed more light on the Canadian canola situation but will also address all of the other issues in the world's oilseeds markets.

 PULSES

• Bean harvest of higher quality than last year's crop

The bean harvest is almost finished in the south but there are still a lot of spring beans to harvest in the Midlands and further north. Quality is variable but certainly a lot better than last year with the beans being a larger size and Bruchid levels generally under 10pct.

• Australian competition for quality beans

Feed base prices have remained steady this week despite falling wheat prices and, for this reason, relatively strong feed value premiums for winter and springs beans are only £10-15/t. The window for quality beans is likely to be very short this year as we are already hearing of new crop Australian beans trading for October shipment at very competitive prices compared to the UK.

 FERTILISER

• AN/urea

Global urea prices have regained value and are back up to $470/t free on board (FOB) traded out of Egypt and Algeria. This is $25/t up on values two weeks ago. This revival follows a lull in the market on lack of Indian buying news which has been compensated by recent business in Europe which has firmed the market. It is anticipated that India will re- enter the market for more urea within the next week or two.

It is likely that urea, UAN and ammonia values will remain firm, especially on news of the Donaldsonville plant in Louisiana shutting down due to damage incurred from Hurricane Ida. This plant has the largest capacity of any in America and is indeed the world's largest nitrogen facility. It produces 4.34 million tonnes of ammonia, 3.26 million tonnes of UAN and 2.64 million tonnes of urea per annum. Production will resume after further safety checks are completed.

At the time of writing, the market awaits new UK ammonium nitrate and nitrogen sulphur values for September onwards. A substantial price increase is expected.

• UAN

The first full week of trading with spring 2022 terms now available has seen business concluded as growers lock into some certainty going forward. UAN volumes available in the UK remain tight as we head into the autumn period. With the harvest almost complete nationally, growers' attention is moving towards drilling; covering volumes of UAN for the anticipated crop area will be an important task in the days ahead.

UAN looks competitive against the solid market sector at this stage, especially with nitrogen and sulphur systems.

• PKs

Phosphates continue to remain stable whilst potash levels look set for another large increase due to high demand and increased freight costs. A point to note is that European on farm values are currently trading at £440/t, which is at a sizeable premium to UK values. Our advice remains that autumn and spring straights and blends should be bought at the earliest opportunity.

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