Frontrunner - 14th October 2022

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WHEAT

• Russia/Ukraine continue to drive markets

Wheat futures prices surged to a three-month high on Monday. Speculators and trade shorts raced for cover due to the Russian missile strikes on civilian targets in many cities across Ukraine, fearful of an escalation of the conflict and an interruption to exports from the Black Sea. However, markets subsequently eased lower as shipments continued. Comments in the media that Russia may cancel an export quota also triggered selling, although with a record 150 million tonne grain crop - 100 million tonnes of which is wheat – this hardly suggests any restriction for exports is necessary.

Market weakness through the week ended abruptly on Thursday afternoon , following reports that Russia had submitted a list of complaints to UN representatives ahead of a planned meeting in Moscow on Sunday to discuss the renewal of the safe Black Sea export corridor. There is a possibility Russia may not support the renewal if the country's concerns are not addressed.

• UK wheat challenged by heavy surplus

The UK wheat market faced additional cross winds challenged by volatile sterling. Its weakness would prove helpful for UK wheat competitiveness in export markets and that will be essential to help clear the surplus. Defra predicted 14.6 million tonnes for 2022 wheat production in England, which suggests a total UK crop of around 15.5 million tonnes. With question marks over domestic wheat demand for both animal feed and ethanol production, it is likely there is two million tonnes to ship without leaving a burdensome carryout. Currently there is a significant price discount for wheat from the 2023-24 harvest. The United States Department of Agriculture (USDA) released its World Agricultural Supply and Demands Estimates (WASDE) report on Thursday - it left UK wheat production unchanged at 14.6 million tonnes and a surplus of one million tonnes. The sterling recovered notably on Thursday afternoon.

• USDA trim stocks but markets still fall

The USDA made few changes to its WASDE, but overall sees lower wheat and corn stocks by the end of the season. Wheat production is seen 3.6 million tonnes lower in the US, in line with its final crop estimate. The USDA also put estimates 1.5 million tonnes lower in Argentina at a total of 17.5 million tonnes and the Rosario Grains Exchange revised its estimate to 16 million tonnes due to drought. The EU is 2.65 million tonnes higher according to the USDA, but surprisingly Russia was left unchanged at 91 million tonnes - other analysts have up to 100 million tonnes. World stocks are seen one million tonnes lower than previously at a total of 267.54 million tonnes, which will be 8.5 million tonnes down on the year.

The USDA world corn balance sheet failed to fully address lower corn production estimates seen by other analysts for the EU and Argentina. With lower US figures - down 1.2 million tonnes - world production is seen almost four million tonnes lower at a total of 1,168.74 million tonnes, which is 48.5 million tonnes down on last year's output. World stocks are seen 2.3 million tonnes lower than previous and will be 2.8 million tonnes down on the year. Wheat futures markets were 2% lower on the close after the report. 

BARLEY

• Volatile barley market

It has been a volatile week in the barley market, with a combination of the Black Sea conflict and sizable currency movements being the main drivers. Farm selling has been relatively muted, with UK farmers focussing on drilling autumn crops more than marketing their barley

• Malting barley

The UK malting barley market continues to be dominated by the sizable exportable surplus and demand uncertainty. Opportunities for movement prior to Christmas are getting filled quickly. Malting premiums remain attractive. However, it is likely these premiums will come under further pressure in time.

For crop 2023, the English brewing market is very inactive, unlike the Scandinavian and French malting barley markets which are trading at higher volumes for crop 2023 than for crop 2022. Until the size of the crop 2023 spring barley crop is clearer - which will depend on the area of autumn wheat sowing - merchants and farmers alike remain reluctant to sell fixed price malting barley forward.

​OILSEED RAPE

• UK prices higher

The two big stories in markets this week have been the rising tensions between Russia and Ukraine in the Black Sea region, and the keenly anticipated release of the October edition of the USDA's WASDE report. Both events have had a positive impact on global prices in all oilseeds sectors.

• Rising tensions in the Black Sea

Last Saturday the explosion on the Kerch Bridge, which connects mainland Russia to Crimea, crossed one of the Kremlin's 'red lines'. Although the initial response has been an increase of conflict in Ukrainian cities, there are longer term fears that there could also be implications for the viability of the export corridors out of the Black Sea. The pace of exports of all commodities in recent months has been impressive, but there is still much to ship out and any prospect of a return to the blockade will inevitably produce stress in the markets.

• Bullish USDA report

Thursday's USDA report initially sent markets higher due to lower than expected US soybean yields and year end stocks. However, global stocks were a bit higher than forecast, with world bean production set to be up 35 million tonnes from last year and overall, this doesn't look like a report that will trigger a sustained bull run. There is still uncertainty going forward on a number of issues, such as the likelihood of Chinese activity after its 'Golden Week' holiday, confirmation on Canadian canola yields as its harvest progresses and, possibly the biggest question of all, what will the weather in South America do to soybean crops over the next few months? The world supply of oilseeds looks very healthy for 2022/23, but this could rapidly change if Argentina and Brazil in particular don't have bumper bean crops.

 FERTILISER

• Urea/AN

Domestic urea offers remain unchanged, although there has been a slight improved exchange rate over the last seven days. There have been further signals of potential move up in the urea market because, elsewhere on the globe, Middle Eastern urea traders are bidding significantly higher for future shipments alongside the expected tender of 1.5 million tonnes of urea from India that is likely to be announced before late October

Ammonium nitrate offers also remain largely unchanged with local regional adjustments to movement month offers being the only thing of note.

• UAN

Liquid suppliers have remained unchanged during the recent volatility on currency, which gives liquid users confidence on supply and access to product into the spring. Growers should double check their spring requirements with their existing tank fill and any already booked spring volume, especially as planting progresses across the UK.

• Phosphate/potash

To follow on from a significantly reduced PK purchase period from August to September, manufacturers have weakened their PK prices for UK importers. This is a UK/European reaction and at this stage is seen as demand destruction, rather than a sign of a weakness trend to the market. It's important to remember there are still broken links in the usual PK supply chain across eastern Europe that continue to be significantly disrupted.

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