Frontrunner - 17th March 2023

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WHEAT

• Export corridor deal yet to agree terms

Wheat markets have endured a volatile week's trading with focus on the talks between representatives from Ukraine, Russia and the UN as they discussed the renewal of the Black Sea export deal.

Russian officials have indicated that there is no objection from Russia to a deal extension, but that this extension would be limited to a 60-day term. This is due to Russia's belief that western sanctions are preventing the free flow of its agricultural produce and harming its trade. In response, a Ukrainian official has stated that anything less than a 120-day extension would be in violation of the agreement. At the time of writing, the UN has not confirmed an extension or provided further details on possible terms.

This uncertainty has unsettled traders holding notable short positions and led to a price rally. During this time, Saudi Arabia and Algeria have bought significant volumes of milling wheat, adding to the futures buying interest.

Later in the week, Chinese officials commented on the export corridor deal, saying that China would like to strengthen communication with all parties and enhance global food security. China is a major importer of both wheat and corn, importing around 28 million tonnes across these commodities annually, and therefore has a vested interest in seeing an extension successfully agreed.

• International Grains Council releases 2023/24 projections

Production estimates from the United States Department of Agriculture (USDA) will not be available until May, but the International Grains Council (IGC) has released its projections for 2023/24.

It sees world grain production rising by 33 million tonnes next season to a total of 2.283 billion tonnes. The forecasted rise in volume is primarily due to anticipated increases in corn production on the year for the US, Argentina and the EU, which are projected to be up 28.9 million tonnes, 15 million tonnes and 12.8 million tonnes respectively.

However, global wheat production is expected to fall. The IGC predicts a 14-million-tonne drop to a new total of 787 million tonnes. This is primarily due to the expectation that there will be a lower volume from the Black Sea region, with the IGC's production estimate for Russia down to 82.8 million tonnes and for Ukraine down to 20.2 million tonnes. Estimates from private analysts are more pessimistic, with some projections predicting that Russian production will fall to below 80 million tonnes and that Ukrainian production will be lower than 15 million tonnes.

Conversely, larger crops are expected in the US where winter wheat plantings are 11% up on the year; however, winter crop ratings remain poor. The IGC sees the US wheat crop rising from 44.9 million tonnes to 51.4 million tonnes this season.

Meanwhile, despite drought conditions, Argentina's wheat production is expected to rise from 12 million tonnes to 19 million tonnes this season. Weather will play a key role in the coming months in ensuring winter wheat crops develop successfully. Corn crops are yet to be drilled.

• Storms threaten Indian wheat crop

Having endured record-breaking heat last month in parts of the country, Indian wheat crops now face a different weather threat. Rain, hail and high winds are forecast and could prove damaging with the harvest now underway and set to gather pace over the next few weeks. The official government wheat production estimate is 112.2 million tonnes, but many private estimates are notably lower because of the February heatwave.

Last year, a heatwave in March proved damaging, but soaring world prices following the Russian invasion of Ukraine encouraged increased exports before the government imposed an export ban. The government will review the export ban next month and consider extending the term to prevent possible shortages and a return to the record high domestic wheat prices seen in recent weeks.

Meanwhile, Zimbabwe has achieved wheat self-sufficiency for the first time in 56 years. Production is up 25% on the year to 375,000 tonnes.

BARLEY

• No further decline in old crop barley

Old crop feed barley prices have increased £1-2/t across the UK this week, marking a break in the longer-term downtrend. Although we have seen marginally more farm selling as the week has gone on, a material uptick in near-term export demand has outweighed the domestic supply.

Compounder requirements remain almost non-existent and it appears cover is in place for the remainder of the season. We do not expect domestic feed demand to change substantially in the near term, especially as we move into a period of warmer weather.

• Exports not keeping pace

Although we have seen some more export demand recently, this year's exportable surplus for the UK is in the region of 1.3 million tonnes and very little has been sold for May-June. To date, only 800,000-850,000 tonnes has left the UK, which leaves around 150,000 tonnes per month that still need to find a bid to avoid a significant carry into next year. This is unlikely, considering the traditional buying trends we have seen in previous years.

• Slow new crop barley market

Spring barley planting in England is very close to complete now. With some rain falling across the country this week and only a short spell of freezing conditions, there are very few bullish price drivers to report.

Farm selling remains very slow. With barley at its traditional discount to wheat prices, we may need to see more of a rally in feed barley prices or for wheat to come under more pressure in order to see new supply.

Frontier can help you manage your risk in volatile grain markets. Please speak to your farm trader for more information.

OILSEED RAPE

• Oil and derivatives suppressed amidst turmoil in the financial sector

This week, global markets have faced uncertainty after the collapse of Silicon Valley Bank and the bailout of Credit Suisse amongst other liquidity challenges in the financial sector. The effect of this has also been dramatic for some non-agri commodity markets such as crude oil, which, given the importance to the rapeseed market, has added to the negative effect.

Oil has been hit particularly hard, with Brent crude oil down 10% on the week. This has seen oilseeds subsequently post significant price decreases.

This risk-off effect has been felt most strongly in rapeseed, which is down around £18/t in UK ex-farm terms. The market has been suppressed in recent months by a heavy supply situation along with the current strength of Sterling against the Euro. These factors have now been compounded by global macro worries.

The outlook for the rapeseed market remains soft with plenty of supply still available from both domestic and imported sources, mainly of Australian origin. With the current news of troubles in the financial sector, it is going to be difficult for oil users to get carried away with buying their remaining demand for the season. Many therefore expect buying trends to remain on a tapered trajectory in the near term.

 PULSES

• Old crop beans face pressure

Old crop bean markets continue to fall, facing pressure due to lack of demand and a fall in the values of other mid-range proteins such as rapeseed meal. In the UK, we still need to see demand for at least another 80,000 tonnes of beans in order to be able to use the current crop this season; otherwise, a carryover will be seen into new crop that will put pressure on new crop values.

 FERTILISER

• AN/urea

Spring applications have been hampered due to recent weather conditions in the UK. As a result, spot demand is currently lethargic. Planning now for April domestic ammonium nitrate (AN) requirements is still advised with prices remaining stable and with haulage slots available. Availability of physical imported AN options remains limited due to reduced exports from producing countries and, with many imported fertiliser products, any booked shipments to the UK continue to experience delays. UK-produced ammonium nitrate offers reliable quality and availability for growers' delivery requirements for April demand (subject to haulage) in the arable and livestock sector.

Following the Indian tender settled last week, with a wide shipment window to the 1^st June for 1.1 million tonnes, global markets have declined in value with European demand from Egypt now absent.

Ammonia, the main raw material used to produce nitrates, has rapidly moved from tight global supply to what looks like a large oversupply as we head towards the second quarter of the year. This may not affect production costs for the remainder of March and into April, however it will give confidence to European producers going forward as the premium for AN over urea is set to have a very noticeable and welcome reduction, which could bring a return to competitive levels.

Ammonia and urea stocks are likely to continue to grow unless producers decide to scale back manufacturing until inventories are clear or fresh global demand returns in the near-term. The long shipment window set by India has undoubtably affected price and stock confidence for urea producers in North Africa, which is the main supply into UK and Europe. Much of the 1.1 million tonnes purchased may be sought directly from Russian suppliers or sourced from Russian origin via China.

Growers in the UK should maintain a watchful eye on forward markets (delivery May onwards) and carefully consider buying decisions until comparative options are made available. Your Frontier contact can keep you updated with forward market information and, more significantly, with spot product choice and availability.

• Liquid

With unsettled weather across large parts of the UK, UAN applications have slowed in the last week. Growers with tank capacity are encouraged to fill on-farm storage to ensure product is available for application once conditions allow. Those with additional requirements to purchase for application this spring continue to have access to a full portfolio of nitrogen and nitrogen sulphur grades. A range of NP and NPK grades are also available for growers with requirements for starter fertilisers on root crops and maize in the coming weeks. These are available in both bulk and IBC options.

• PKs

Phosphate and potash markets, for now, remain stable in the UK, but there are possible downward reductions on the horizon. With the delays on some imports due to last minute buying to capture these internationally lower levels, the UK may not see the full impact of the shortfall until stocks are replaced. However, some new phosphate prices are starting to show with physical product available. 

Get in touch

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