Frontrunner - 19th November 2021

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WHEAT

• Record highs again

European wheat futures struck new record highs in volatile trading this week. Markets continued to rise, reacting to further notable purchases from some of the world's major wheat importers while being mindful of the likelihood of further export restrictions for Russia, the world's primary wheat exporter. Algeria weighed in with a chunky purchase, thought to be up to 800,000 tonnes, having to pay up to $384/t including freight for shipment mid-December to the end of January. The country relaxed its bug damage specification, now allowing for up to 1% presence, which enables the country to source 250,000 tonnes of this total from Russia. It has the option to source the remainder from a range of origins as wide apart as Poland and Argentina.

The Philippines was another strong buyer, securing 220,000 tonnes of Australian feed wheat for delivery January/April and it is reported that China has bought a similar volume of French feed wheat for shipment in December. However, the prevailing high prices are leading to reluctance to buy wheat and the pace of buying could slip. Korea declined offers of feed wheat at $399/t and bought corn instead at $318/t. Egypt bought just one 60,000-tonne cargo from Romania – the cheapest origin - for arrival 1st-15th January, preferring to pass on the more expensive offers it received.

• Upbeat Argentina

Australia has been troubled by ongoing rain leading to concerns for yield and quality, but in Argentina there is an improving outlook for wheat and corn production following better-than-expected rains. One independent analyst projects a 'super-record' wheat harvest at 23 million tonnes which compares to previous estimates from the Buenos Aires Grain Exchange (BAGE) of 19.8 million tonnes and the United States Department of Agriculture (USDA) of 20 million tonnes. Last season, adverse weather saw the wheat crop shrink to 17.65 million tonnes. The Argentine wheat harvest is now almost 18% complete. Corn production is expected to be between 55-56 million tonnes; well ahead of last season's 50.5 million tonnes. Argentina is a key world grains exporter and the USDA estimates its wheat exports this season will reach 13.5 million tonnes and that its corn exports will reach 39 million tonnes.

• IGC cuts world wheat crop

The International Grains Council (IGC) has published its latest world balance sheet, trimming four million tonnes from production, bringing the new total down to 777 million tonnes. This is mostly due to crop losses in Iran following the country's worst drought for 50 years. The IGC's previous estimate for Iran of 14 million tonnes is now down to 11.5 million tonnes. However, the IGC has a more positive outlook for world corn production, increasing its estimate by two million tonnes to a new total of 1.212 billion tonnes; this rise is mostly due to increased US yields. Overall, world wheat year ending stocks are seen two million tonnes lower at 274 million tonnes. This is offset by a two-million-tonne increase in world corn stocks, which are now at 287 million tonnes.

Stratégie Grains has produced what seems to be a mildly bearish revised set of EU balance sheet data. It has reduced feed wheat demand in favour of corn and reduced its export estimate from 32 million tonnes to 30.4 million tonnes. It sees EU wheat prices losing competitiveness in export markets in favour of Russian and Ukrainian supplies and end season stocks rising by three million tonnes on the year to 12.2 million tonnes. It suggests this should see EU price rises coming to a halt and possibly even beginning to fall, particularly if 2022 prospects look good. Brussels' latest EU wheat export data was an unimpressive 223,000 tonnes up on the week to a new total of 10.01 million tonnes, but unofficial vessel counts still suggest French data is missing up to two million tonnes of shipments. French October shipments outside of the EU were 973,000 tonnes - the highest for seven years. China was the main taker, ordering 431,500 tonnes, with Algeria the second-largest buyer, importing 193,400 tonnes. 

BARLEY

• Dutch buyers reappear for December feed barley cargoes

Buyers of UK feed barley for export reappeared this week which has helped keep the feed barley market firm, especially in the southeast where UK values are lowest. Exports from northern England are unlikely to happen as domestic demand is high enough to keep barley away from the ports. UK ex farm values for December are now at their highest level this marketing year.

• UK domestic market sees increased activity

Domestic buyers of feed barley for the January to March position have also been more evident this week, helping to push up values again. Both first-hand end users and trade shorts have tried to buy for this period. Barley discount to feed wheat has widened but only marginally. This has probably encouraged buyers to the market as barley looks better value at the slightly bigger discount. Barley discount to wheat today stands at around £14-17/t depending on location.

• New crop barley sellers quietly locking into harvest values

New crop barley values are looking more attractive today and a steady stream of growers is taking advantage of the forward prices. With crops in the field growing well in benign weather conditions, more growers are encouraged to lock into the highest values that have been seen for crop 2022 barley so far. Growers are taking advantage of these values by either selling straight feed barley or feed barley base to be used for later malting barley marketing by adding a premium after harvest. 

​OILSEED RAPE

• More volatile markets

November is shaping up to be another rollercoaster of a month on rapeseed markets with domestic prices currently £15/t higher than at the beginning of the period, although not at the highs seen when values had soared by £30/t and farm prices at over £600/t were available in many parts of the country. One difficulty has been the firmness of Sterling in the past week, which has appreciated by almost 2% against the Euro, knocking over £10/t off domestic values.

• Competing oils

The upward march continues and, despite some dips - notably in June, early October and at the start of this month - each peak in prices over the past six months has been followed by an even higher one which has left the market 80% up from where it was a year ago. The simple fact is that higher prices have failed to curtail demand for rape oil sufficiently. Back in August, European rape oil and soya oil were trading at the same price but now rape oil sits at a premium of 30% or around $300/t over soya oil. It is also noticeable that palm oil - the best alternative to rape oil - was trading at a hefty 40% discount to soya oil back in July but is now only marginally cheaper. The EU looks set to record an increase in palm oil imports in 2021/2022 of 12%. This has been driven by the shortage of rapeseed available for the domestic crush.

• Fund money coming into farm commodities

There is plenty going on in oilseeds markets at the moment with traders wondering when the Chinese will return to the market, how dryness in South America might develop over the next few months given the La Niña weather pattern, how politics might play out in the influential energy sector and how fund managers might behave as global inflation starts to take off. If you are holding cash in an economy with low interest rates and rising inflation, it is not difficult to see why fund managers might find investing in agricultural commodities an attractive option.

 PULSES

• Haulage issues affecting feed bean values

Current crop feed bean values have remained largely unchanged this week and, in some areas, values are falling as buyers are covered or can't get haulage to move any more beans for November or December. In the new year, there will be continued buying interest to UK east coast ports but, with limited demand in the south and west, feed values here are expected to fall further.

• Human consumption values rising

Human consumption values continue to rise, especially in the north where most of the good quality beans were harvested. In Australia, the bean harvest has been hampered by unexpected rains preventing completion of the harvest and causing drying issues. In addition, growers are reluctant to sell beans and are preferring to sell the very high prices of spot milling wheat but, as in the UK, logistical issues are preventing exports of beans and wheat.

 FERTILISER

• Nitrogen

India has secured offers of approximately 1.6 million tonnes of urea in its latest tender, which is well above the anticipated tonnage. Prices were between $960-1000/t. The product being offered and committed is from the Middle East and Africa. This means that India has the lion's share of the spot tonnage available for December shipment and could significantly reduce supply to other markets. Recent figures show that imports of granular urea to most European countries are down, with some tonnages dramatically reduced from recent years. This shows how big an impact the Indian tenders and Russian export reduction are having on the granular urea market in Europe and the UK. There is a further Indian tender due, with estimates being around 1-1.5 million tonnes required for shipment for January/February.

Last week, the UK was issued with new levels for domestic ammonium nitrate (AN) which was withdrawn on Tuesday. These new terms were £15/t more than the last offer but were for January delivery, which is getting nearer to spring usage time but doesn't reflect the true values of AN replacement as imported AN is currently trading at higher values than domestic. Uptake on this new offer was steady, but growers are advised to buy their requirements as soon as possible due to ongoing supply and logistics issues. The market waits to see the next moves on domestic AN pricing. Furthermore, gas prices have risen this week by approximately 17% on the back of supply issues in Europe, which puts them at their highest price since mid-October.

• UAN

Terms are now available for a limited volume of nitrogen and sulphur UAN grades for spring 2022 delivery. Suppliers remain nervous about offering large volumes of product in a forward position due to the uncertainties around gas values and supply of UAN from major producing countries that have indicated their intention to review exports in recent weeks.

Trade remains steady with the balance of supply and demand being carefully monitored by the merchant trade and shippers and suppliers. Good levels of winter cropping could see pressure on UAN supply as spring 2022 unfolds and the true demand for nitrogen becomes clearer.

• PKs

Phosphate markets continue to firm with DAP being the latest product to see a large price increase of approximately £100/t over the last week. This rise is due to limited supply with the news of the Russian export quota being cut and, due to this, suppliers are getting a little nervous of Russian product being supplied to the UK. MOP continues to look firm going through to the spring.

Haulage is still an issue and this will likely continue to be the case through to the spring usage period. Growers are advised to book their requirements now in order to ensure their tonnage is received to farm in good time for spring application. Please call your Frontier contact for more information.

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