Frontrunner - 12th June 2020

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WHEAT

• Improving crop prospects

Beneficial rain across most of Europe, as well as improving wheat and corn production prospects in the US, weighed on wheat markets early this week. Expectations for a bumper US corn crop in the 2020/21 season grew higher as US farmers advanced their planting to 97% completion. This is ahead of the five-year average of 94% and would suggest that drilling the increased 7.3 million acres projected by the United States Department of Agriculture (USDA) is highly likely.

In addition, the US corn crop ratings improved one point on the week to 75% rated 'good' to 'excellent'. This is a significant improvement on this time last year when that figure was only 59%. US wheat harvesting advanced to 7% completion this week, up from 3% last week, bringing progress in line with the five-year average. Texas advanced to 53% completion.

The winter wheat crop conditions were unchanged on the week. They remain at 51%, rated 'good' to 'excellent', but are still well behind last year's figure of 64%. US spring wheat planting reached 97% and is almost complete. Furthermore, the crop condition improved two points to 82%, or a rating of 'good' to 'excellent'. Overall, US crops do not have any issues of concern.

• EU wheat crops continue to shrink

Despite recent rains across Europe which were expected to benefit parched wheat crops, leading analyst Stratégie Grains made further cuts to its estimates for EU wheat production for the 2020/21 season in its June report this week. It cut two million tonnes from its previous report last month and now estimates the EU wheat crop, including the UK, will reach 130.9 million tonnes. This is 16 million tonnes below the previous season. The primary reason for this drop is significant reductions for France and the UK of 7.5 million tonnes and 6.4 million tonnes respectively. This season, the EU is likely be the world's leading wheat exporter, ahead of Russia, and may ship more than 35 million tonnes by the end of June. However, with the smaller crop next season, Stratégie Grains predicts exports will fall by over nine million tonnes to 26.1 million tonnes.

• USDA adds support to the bears

The USDA published its June World Agricultural Supply and Demand Estimates (WASDE) on Thursday. On first glance, the report highlighted a bearish outlook for wheat. Compared to the May report, the USDA projects that world wheat production will increase by five million tonnes to a record 773.43 million tonnes, which is nine million tonnes up on the year.End-of-year stocks will increase by six million tonnes to a record 316.09 million tonnes - a 20-million-tonne increase on the year.

It may appear as if there is more than enough wheat in the world and that this might push prices lower, but it is important to look behind these numbers.These gains are almost entirely for China and India, which is relevant as these countries do not export their wheat. In other words, the additional wheat is not available to countries that need to import.

If we look at the countries that do export wheat, the report has a more market-friendly outlook because of lowered production rates. The EU dropped two million tonnes which was offset by a two- million-tonne increase for Australia. Ukraine was cut by 1.5 million tonnes, which was partly offset by unexpected increases in the US. Overall, production and stocks for the world's major exports both dropped two million tonnes on the May report. However, overall, there will be a year-on-year stock gain for the major exporters of three million tonnes.

However, this is relatively insignificant with such wide-ranging wheat production estimates for the Black Sea countries, Russia, Ukraine and Kazakhstan at this time. The range between the highest and lowest estimates is as much as 15 million tonnes and currently temperatures for some areas of those countries look worryingly high for developing wheat crops.

BARLEY

• Pressure on cereal prices

Barley prices have come under pressure this week as beneficial weather around the world has put pressure on cereal prices generally. Rains across much of Europe have helped the barley crop - particularly in Denmark, a major malting barley producer. Rains in the west of Europe have now been replaced with hotter conditions, which could be detrimental in the long-term for the spring crop.

• Tunisia rejects high prices

In the international barley market, the tender by Tunisia on Thursday for 100kt of feed barley for August delivery ended in an actual purchase of only 50kt, as higher priced offers were rejected. The prices traded were at levels below where traders see the UK harvest market at the moment. A further guide to where new crop barley values are heading will be seen on Friday, as Saudi Arabia is holding a tender for 960kt of feed barley for August to September arrival.

• UK market slow

Closer to home, the UK barley market has had a quiet week. Rain across much of the UK, along with lower temperatures, have slowed crop development and are seen as beneficial to the spring barley crop. Much of the West Midlands remain particularly dry and crops are still suffering badly. With demand uncertainty for malting barley still uppermost in buyers' minds, the market is almost at a standstill. Feed barley trade has also been limited as values edge downwards. Buyers have largely withdrawn from the market and will look towards lower prices on another day. 

​OILSEED RAPE

• Markets higher on weaker sterling

A weaker sterling over the last few days has lifted domestic rapeseed prices by £4/t. However, beyond currency fluctuations, there has been little excitement in the market. European futures markets have been largely flat and it felt as though trade was holding back until 5.00pm on Thursday when the USDA released its June WASDE report.

• Bullish USDA report

The report itself was bullish for soybeans, which is the world's benchmark commodity within the wider oilseeds market. The main focus was on the 2020/21 US numbers, with the report forecasting a 24% increase in US soybean exports, an increased domestic crush programme and year-end stocks coming in at 395 million bushels compared to trade estimates of 426 million bushels. However, markets have so far shown little reaction following the release of the report. The future direction of prices is primarily driven by US weather and the ongoing politics of trade with China. Neither of these issues were addressed in the report.

 FERTILISER

• Nitrogen

The bagged-nitrogen market took a back seat this week as terms for new season liquid nitrogen were released on Monday. The terms mirrored the bagged prices in terms of nitrogen cost per kilo and interest was expectedly high. The focus was mainly on filling tank space on farms with spring requirements that will need to be fulfilled once a better idea of cropping for next autumn is known. Very little fresh news came from European or world markets, although there was a slight increase in spot world urea markets. In Europe, Yara moved its nitrogen offers up €2 for an August move.

• PKs

Currency is the foremost focal point for PKs, as sterling firmed against the dollar and the euro this week. Currencies will remain volatile as we come out of lockdown around the world and economies try to recover from the circumstances of Covid-19. Meanwhile, phosphate and potash prices remain unchanged from last week. There is some interest for early autumn applications.

• Milling wheat

Crops will move fast once this band of rain passes through the UK. Growers will be applying foliar nitrogen to enhance proteins in order to meet the milling wheat premiums for the 2020 harvest.

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