Frontrunner - 15th May 2020

This week, the United States Department of Agriculture (USDA) published its World Supply and Demand Estimates for May, which included its first look at the 2020/21 season. An increase in supply exceeding demand is anticipated, which will lead to increased year-end stocks for both wheat and corn.

Corn production in the US - the world's largest producer - is predicted to jump significantly. By the end of last week, US farmers had drilled over two-thirds of the planned corn area. The area planted is expected to increase by over seven million acres on last year and yields should increase by over 6%.

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WHEAT

Bearish numbers from the USDA

Furthermore, US year-end stocks will reach a 33-year high at 84.29 million tonnes. World corn production is predicted to rise to 1,186.86 million tonnes - 79 million tonnes up on the year. Despite the negative impact coronavirus is having on demand, usage is forecast to rise. In addition, world stocks will rise 25 million tonnes to 339.62 million tonnes.

The 2020/21 world wheat balance sheet is more stable than corn, but year-end stocks are still seen rising by 15 million tonnes to a total of 310.12 million tonnes. Increases in production in Australia, Argentina, Canada, Russia and China will outweigh declines in the EU, Ukraine and the US. The USDA estimates world wheat output will be up four million tonnes on the year to a total of 768.49 million tonnes.

The USDA report triggered fund selling on futures markets but there is plenty of weather to navigate in order to realise these crops, many of which are not yet even planted.

EU wheat output cut again and supply seen notably lower

Market analyst Stratégie Grains signalled further declines for 2020 EU wheat production in its latest report published this week. Prolonged dry weather has led to cuts in yield prospects for countries in northern Europe, including Romania and Germany, and overall EU wheat production is seen falling to 132.9 million tonnes. This will be 13.6 million tonnes less than the 2019 harvest.

An increase in the current season's export prospects to 34.3 million tonnes will eat into the 2019-20 year-end stocks and therefore further reduce the expected EU wheat supply for 2020/21.

Improved Australian wheat prospects

Wet weather across Australia could boost its wheat production prospects following three years of drought. The Australian Bureau of Meteorology reported an estimated 80% chance of above-average rainfall from June to September this year and sees the potential for wheat yields to increase by 40%. The USDA would seem to agree with the bureau's estimate for 2020/21. Its own estimate is up nine million tonnes on the year to 24 million tonnes.

BARLEY

Good rainfall in mainland Europe

Many parts of mainland Europe have received good rainfall this week which is useful for barley crop development. Iberia, in particular, continues to receive rain, which is likely to limit feed barley import demand. In the UK, barley crops are generally looking well, but rainfall would be welcomed to wash in the next nitrogen application. The dry forecast is a concern in some areas.

Uncertainty continues as the hospitality industry remains on lockdown

Last Sunday, the Government announced that the UK hospitality sector will not be opening again until July at the earliest. This news did not come as a surprise to most. However, it was stressed that this date is still far from guaranteed, with scientific criteria needing to be met before anything can be confirmed. Subsequently, the uncertainty in the brewing, distilling and malting sectors looks set to remain in place for the foreseeable future, as does the reduction in demand for both beer and malt.

Conflict between China and Australia

In global barley news, a diplomatic row between China and Australia is escalating, with China threatening to apply major tariffs on Australia's barley exports. This follows the Australian Prime Minister lobbying his counterparts for an international inquiry into the origins of the Covid-19 virus. The yet-to-be-finalised tariffs may include a dumping margin of up to 73.6% and a subsidy margin of up to 6.9% for barley imported from Australia. This would effectively put an end to Australia's barley trade with China which typically accounts for around half of Australia's barley exports. Consequently, this could result in Australian barley needing to compete against Black Sea and European origin barley into Middle Eastern and North African markets.

OILSEED RAPE

Forecast rise in Chinese soybean imports

Markets were hoping for fresh direction this week following the release of the World Agricultural Supply and Demand Estimates report for May from the USDA. The report included a first look at the prospects for US soybean exports to China in 2020/21.

Overall, the report was considered to be mildly bullish to soybeans - the dominant global vegetable oil market - with US year-ending stocks shrinking by 43% and an increased import demand into China being evident. Chinese imports for 2019/20 were increased in the report by three million tonnes to 92 million tonnes overall. 2020/21 imports were predicted to hit 96 million tonnes. This would imply that the first phase of the US/China trade deal will be fulfilled and that the Chinese pig herd will be completely rebuilt and even expanded.

Muted reaction to USDA report

It was scepticism over the US-China deal that lead to a muted reaction amongst traders to the report. US soybean markets are currently trading slightly down on the week and Paris rapeseed futures are close to unchanged. Physical prices into the UK crushers are also likely to remain unchanged since Monday's opening, although some sterling weakness today is helping to support levels. It feels as though markets have taken on board the changed demand picture and attention is likely to return to crop conditions, particularly in Europe and the Black Sea region, over the coming weeks.

FERTILISER

Nitrogen

Domestically, it has been a quieter week in fertiliser markets, with discussions moving towards the planning of next year's cropping and nutrient management. There has been no news from CF Fertilisers or Yara UK following the reset levels in mainland Europe for June. Therefore, UK prices remain unchanged. Planning product selection and nutrient requirements ahead of the 'new season' will also be key to managing risk. We recommend growers talk to their Frontier contact to update product choices and enquire about the risk management tools available.

Globally, urea prices look stable, having bounced up a little ($10/mt) in the past couple of days following a short period of buying activity at lower levels, which included the Indian tender for 630,000 tonnes. Gas prices remain low. European markets are lacking confidence to commit to buying urea ahead of the general release of ammonium nitrate levels.

PKs

Blend demand remains low this week with prices dropping back as we move into the traditionally quiet months. Growers are advised to keep close to markets, as exchange rates will have a significant impact on results and could present opportunities for covering requirements (TSP / DAP / MOP).

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 May 2020

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