Frontrunner - 17th January 2020

WHEAT

• China/US trade deal - positive or not for US wheat markets?

US wheat futures markets continued to rally earlier this week, reaching 14-month highs ahead of the US and China signing 'phase one' of their trade deal. Bullish traders were encouraged by the view that, in its part of the agreement, China would make significant purchases of US agricultural products and start buying notable volumes of US wheat. However, the text of the agreement stated purchases would be made at market prices based on commercial considerations. In other words, wheat purchases would only be made if the wheat was needed and prices were favourable. The recent rally in US agricultural futures markets has left wheat prices uncompetitive versus other origins. Markets slipped back on Thursday as speculators became sceptical towards any immediate trade and banked some profits.

• French markets react to strikes

Strike action in France is having a major impact on the country's ability to execute wheat exports.

There are reports of vessels waiting at French ports with over half a million tonnes of capacity not loaded. This in part helped French wheat futures reach a 17-month high this week. However, if the strikes continue, wheat exports will have to switch to alternative origins and this will impact negatively on the EU export pace and possibly prices.

• Analysts signal smaller 2020 EU wheat crops

In its January report, leading analyst, Stratégie Grains, highlighted the prospect for a smaller EU wheat crop in 2020 following the winter drilling difficulties for western France and particularly the UK. They estimate the 2020 EU-28 soft wheat crop will reach 139.8 million tonnes; 6 million tonnes lower than the 2019 harvest. However, following further heavy rain across the UK this week, fields in many undrilled areas are now as saturated with water as they have been all winter. Stratégie Grains sees the UK wheat area at 1.64 million hectares, which is only 160,000 hectares lower than that drilled the previous year. Without a sustained period of dry weather in the very near future, that is a very optimistic view. The worrying potential shortfall crop helped London wheat futures rally further this week to highs not seen since August 2018.

• Australia wheat output lower

A recent survey carried out by financial organisation, FC Stone, puts the 2019 Australian wheat harvest at 14.45 million tonnes which is lower than other estimates. The official crop estimate from the Australian Bureau of Agricultural and Resource Economics and Sciences is put at 15.9 million tonnes.

In its January World Supply and Demand Estimates report published last week, the United States Department of Agriculture (USDA) lowered their estimate on December to 15.6 million tonnes.

BARLEY

• Feed barley prices firm

A lift in the wheat futures this week gave feed barley values a boost on both old and new crop. Good demand into ports across the UK has also helped to keep values firm.

Competitive freight rates have helped spot export sales to mainland Europe. Domestically the market has quietened off as it often does post Christmas, with end users largely absent from the market. However, in Northern England, trade shorts for February have helped to support values.

• New crop market tone set by the weather

Recent wet weather across the UK has once again halted any further winter wheat drilling and the potential for a large spring barley crop looks likely.

New crop feed barley values are currently heavily discounted to wheat as a result of the possible large barley crop and so should look attractive to domestic compounders. However, with adverse weather continuing to impact much of the UK, the spring barley hasn't been drilled yet and growers are wary of selling what is not even in the ground. As we have seen this week, the new crop UK market will react to ongoing weather conditions as we progress through the spring. 

​OILSEED RAPE

• Trade deal disappoints

Oilseeds markets have been weaker this week, with US soybean markets dropping 2.5% and physical rapeseed prices in the UK falling by £10 per tonne. After the 'phase one' trade deal between the US and China was signed off on Wednesday, markets were disappointed about the lack of clarity over the volumes of US agricultural commodities that would find their way into China. Instead, it now appears that President Trump's insistence on guaranteed volumes has changed, with trade being governed by commercial needs and market prices. This introduced a note of uncertainty which inevitably led prices lower.

• Production increases

The US was not the only source of bearish news this week. The latest estimates for the Brazilian soybean harvest indicate a huge crop, likely to be in excess of 125 million tonnes. Shipments from this origin are currently offered into the Chinese market at a significant discount to US supplies.

Elsewhere, official data from Ukraine points towards another increase in autumn rapeseed sowings for harvest '20 and both crude oil and palm oil markets have been losing ground recently.

After the sharp gains of December and early January, we have seen a correction in prices this week and a move into a new phase of market dynamics.

 PULSES

• Old crop

Feed beans continue to rise as buyers struggle to buy sufficient volume to meet their current demands. With values having risen over £5/t since the turn of the year, we may soon see imported peas starting to replace beans in certain feed mills. This will take some of the heat out of the market but, with many growers holding beans back to use as seed and a busy export programme, there won't be much downside in the short term.

• New crop

Values are relatively strong, supported by new crop wheat futures and the continuing uncertainty over the likely ground conditions when farmers start to plant their spring crops. At some stage, when and if the weather improves, we are likely to see new crop bean values fall as, to most feed buyers, they are not competitively valued.

 FERTILISER

• Nitrogen

The market has certainly fired up this week given the price move from both CF Fertilisers and Yara last week. UK AN and NS grades have come back into line with Europe and demand has returned to the market. What direction will the market take next?

The weather is still the main driver but, with a decent forecast looking possible in the next fortnight, demand may well drive prices back up following the recent drop. Before we know it we will be heading into February and logistics will be the issue. The urea market has firmed a few dollars as spot demand picks up and production space is now limited for January/early February.

• PKs

With MOP/TSP and DAP priced at three-year lows, we have seen plenty of buying interest and the blenders are seeing some decent volumes after some quiet weeks. The question now is how long it will be until restricted production space and delayed deliveries are the key focus. With limited downside and more upside, now may be the time to jump in and cover any potash or phosphate requirements. Today we are hearing of imminent increases in the world DAP market. The UK has stocks of DAP but, generally, it is priced higher than alternatives so sellers may move quickly to firm prices. 

Get in touch

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