By Frontier Trading Desk on Friday, 22 April 2022
Category: Market information

Frontrunner - 22nd April 2022

European wheat futures started the post-easter bank holiday weekend with strong gains, with both the Paris and London new crop markets setting new contract highs in early trade following stronger US wheat markets. Chicago Board of Trade (CBOT) futures were higher on the latest crop condition report and the overall situation is worse than trade expectations. Winter wheat slipped two points to just 30% good/excellent, this compares to 53% last year and trade expectations at 33%. The crop condition index has only been worse in one of the past 35 years at this stage of development.

You can also listen to the Frontrunner podcast - press play to hear the latest report. The report this week is read by farm trader, Ollie Wilson.

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Please note, since publishing additional content has been added to the written report which is not included in the audio report.

WHEAT

European wheat futures started the post-easter bank holiday weekend with strong gains, with both the Paris and London new crop markets setting new contract highs in early trade following stronger US wheat markets. Chicago Board of Trade (CBOT) futures were higher on the latest crop condition report and the overall situation is worse than trade expectations. Winter wheat slipped two points to just 30% good/excellent, this compares to 53% last year and trade expectations at 33%. The crop condition index has only been worse in one of the past 35 years at this stage of development.

The conflict in Ukraine continued to be the primary price driver for wheat, with the prolonged tensions limiting wheat production potential and causing longer-term disruption to export capability.

The European Union is the first likely source for replacement supplies to help meet the needs of the major wheat importers, but analysts Strategie Grains see less available for shipment during the 2022-2023 season. In its latest estimates, 2022 production was trimmed by 200,000 tonnes on last month to a total of 126.7 million tonnes, which is 3.3 million tonnes down on the 2021 crop. The available exportable surplus is 30.3 million tonnes, which is 1.1 million tonnes down on 2021-2022.

Although its crop is one point down on the week, yield potential for leading EU producer France remains encouraging with weekly winter wheat crop ratings at 91% good/excellent, ahead of 85% at this stage last year. In contrast to a dry UK, much of France is set to enjoy rains which will benefit crop development.

Having set contract highs at the beginning of the week, new crop wheat futures subsequently eased lower but lost 5% of its value as traders banked profits from the recent sharp price gains. There are some upbeat 2022 wheat production estimates for Russia, as well as some encouraging spring drilling estimates from the Ukraine agriculture minister which encouraged some of the sellers.

Analysts, SovEcon see a Russian 2022 wheat crop as high as 87.4 million tonnes, which would be a record and at this stage seems very optimistic. IKAR, Russia's Institute of Agricultural Market Studies, raised its Russian 2022 crop estimate by 500,000 tonnes to a total of 83.5 million tonnes. Last season we saw similar upbeat Russian crop forecasts, but spring and early summer dryness damaged yield potential and resulted in a crop of around 75 million tonnes. Talk of exports up to 41 million tonnes also seems very optimistic and depends on whether the crop is made and how shipping progresses given the economic sanctions in place and punitive marine insurance for vessels using Russian waters.

The Ukraine agriculture minister said the country had sown three million hectares of spring crops and revised the estimate for up to 75% of agricultural land to be planted.

The International Grains Council published its first look at 2022-2023 world supply and demand and cut world wheat production on the year by just one million tonnes to a total of 780 million tonnes. These figures reflect the expected lower Ukraine output seen at 19.4 million tonnes for 2022, in comparison to 33 million tonnes in 2021. This loss is offset by higher production in Russia at 82.5 million tonnes, in comparison to 75 million tonnes in 2021. The council predicts Canada will be bouncing back to 31.6 million tonnes, compared to 21.7 million tonnes in 2021 when drought severely punished yields. World end stocks, however, will fall by five million tonnes to a total of 277 million tonnes.

The India Globalisation Capital (IGC) sees world corn production falling by 13 million tonnes in 2022-23, to a total of 1.197 billion tonnes. This is mainly because Ukraine will drop to 18.6 million tonnes from its record of 41.9 million tonnes in 2021, but it also sees a lower US crop - down 7.3 million tonnes on the year to 376.6 million tonnes. World corn stocks are seen falling on the year by 21 million tonnes.

The IGC stressed that because of the Black Sea situation, forecasts are tentative at this stage

BARLEY

It seems like it's finally reached 'tidy up time' on farm and with merchant long holders in the UK. The critical mass to sell another 4,000 tonne-coaster sized vessel has evaporated with no merchant in any one port able to source this amount, therefore encouraging a push to sell into the domestic market. There are buyers for spot but not in big quantities, resulting in prices falling off the top by £2-3/t. Demand by livestock producers is muted, as margins for pig, egg and poultry production are small or even negative at current raw material prices. Beef farmers are faring better margin wise, as much of the diet is grass-based.

  • New crop prices peak then slip back
On Tuesday, futures prices in Europe reached a peak due to concerns regarding the North and South American weather, conflict in the Ukraine and the prospect that India may not have a bumper crop after all. Since then those features have not really changed, but concerns about demand at these high levels forced a good bout of profit taking – at the time of writing that amounted to around a £13/t correction to the downside. This is healthy for the market, as it creates more of a two-way trade. Long term, the general weather and political concerns remain and without those changing, prices will avoid any massive sell off. It feels like up to 30% of new crop wheat has already been sold which growers feel is enough for now.

  • Malting barley sellers absent
With pretty much all of Europe's malting barley sown and 70% of it emerged out of the ground, it was expected that there would be more sellers around. However, there have been good amounts of selling by growers since last autumn in Europe and while some wish to sell more, it is now limited until further spring barley development has occurred. UK wise, farmers are split into two camps - there are those who are committed on contract with distillers/brewers/pools, or those who are free market growers awaiting further rains. English growers of spring barley crops will need a good rain by mid-May to allow the crop to achieve its potential. The dry areas appearing at present are eastern East Anglia and counties bordering The Wash.

​OILSEED RAPE

This week, we have seen old crop ex farm values for rapeseed edge closer to £900/t due to continued shortness in vegetable oil markets across the world. In combination with this, the May MATIF market is nearing its expiry date. Within this proximity of closing, the market normally goes "technical", which means movements are driven by people exiting their positions rather than trading where they see fair value for oilseed rape.

This week, new crop took a breather after four consecutive green days last week. Canadian planting and development conditions remain of concern due to dryness in the west of the country and snowy, freezing conditions in the east. This comes after an extremely challenging season for crop production there. Growers will be hoping for a swift change in conditions and the trade will be watching for crop and soil condition reports from the area to determine the extent of the effect on the crop, which was originally expected to yield 20 million tonnes. In other planting news, the Ukrainian sunflower planting progress has been understandably slow. To date, its plantings are estimated to have reached 0.6 million hectares compared to 1.2 million hectares this time last year. In addition, the challenges with acquiring fuel and fertiliser make for tough reading. 

 FERTILISER

Activity was limited this week in all nitrate markets. Urea showed a slight drop of approximately $20/t. However, prices are still supported by the anticipated Indian tender. Stocks in India - the world's largest importing country - are very low and this tender delay will mean no new April imports into the region, thus creating higher demand for May. It's also unclear if Russian product will appear in any future tenders, keeping pressure on supply and prices into Europe.

Domestic AN prices are unchanged with activity limited. Gas prices did dip below £2/therm but have now recovered. It's unclear today if these fluctuating gas levels will prompt producers of AN to review terms.

Nationally a steady flow of top-up UAN business is coming in, with suppliers able to offer tonnes for delivery to the end of May at current levels.

Growers attentions are now turning towards what might happen for the 'new season'. However, there are no current UAN offers in the marketplace and it may be some time before we see any indications of where the markets may open. UAN suppliers have indicated they have product supplies in place for 2022/2023, which includes nitrogen sulphur grades going forward.

Bulk foliar nitrogen products are now offered for application to oilseed rape and milling wheat – please contact your Frontier representative to see how these products can enhance yield and quality as part of a robust nitrogen programme.

MOP remains firm globally, with large volumes being purchased into South America and expected soon from India. This all comes as 40% of the global supply as Russia and Belarus are cut off. The UK is operating well below replacement prices so once stocks that are physically in the country have been sold, the increase in price could be big and here to stay. It's advised you discuss your next potash purchase earlier than normal with your Frontier contact.

DAP continues to be physically limited and firm and this is now also pulling up TSP levels. There's no softening in prices looming in the next few months. 

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