Frontrunner - 22nd January 2021

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WHEAT

• Markets in decline

US wheat futures peaked last Friday, ending the 30% price rally that began last August. Futures markets had become technically overbought and were due a correction. US markets were closed for a public holiday on Monday but Chicago Board of Trade (CBOT) wheat futures subsequently posted four consecutive days of losses. London wheat futures peaked on Monday, setting a contract high price that hasn't been seen since January 2013 before following US markets lower during the week.

One of the primary world price drivers has been increasing concerns for the availability of wheat supplies as Russia looks set to levy an increased tax for its wheat exports. It is proposed that from 1^st March, any wheat shipments from the world's leading wheat exporter would incur a €50/t tax. If this is realised, it would cause considerable disruption to normal grain flows. Later in the week, trade rumours suggested that Russia may instead employ a floating tax on its wheat exports, which analysts believe may help reduce prices. This uncertainty galvanised selling pressure.

• Wheat export prices hit $300/t

Uncertainty over future Russian wheat export values pushed demand to other origins and helped Ukraine wheat export prices breach $300/t free on board (FOB) earlier this week. This is the export sales price before accounting for shipping costs. Prices were supported further with news that the Ukrainian government will decide on Monday 25^th Jan 2021 whether to limit its corn exports with livestock groups, asking for a limit of 22 million tonnes with 10.5 million tonnes already shipped so far this season. Ukrainian grain traders say there are ample supplies and the potential restrictions are unnecessary.

• EU export pace needs watching

The EU wheat balance sheet is tight this season, adding support to prices with an exportable surplus that is ten million tonnes lower than last year. Last week's shipments, however, were just 181,000 tonnes, bringing the season's total to 13.991 million tonnes compared to 16.733 million tonnes this time last year. The January EU export estimate from analyst Stratégie Grains is 25.1 million tonnes, leaving just over 11 million tonnes available to ship to the end of June. Just under 18 million tonnes were shipped in the same period last year.

The EU will need to ship in excess of 475,000 tonnes a week to meet that target, but whether importers have the appetite for current high prices to make that happen remains to be seen. Jordan bought wheat this week for August shipment at the equivalent of $250/t before shipping costs, which is a near $50/t discount to old crop wheat supplies.

BARLEY

• Old crop prices increase as UK feed compounders seek alternatives to wheat but discount shrinks

The key market feature this week has been a fairly strong two-way trade between UK farmers selling stocks and UK compounders buying them, as livestock producers lock into barley's discount to wheat; albeit at smaller discounts and higher prices than before Christmas. Fewer exports have traded this week as the domestic price rise has lifted sellers' port prices above what can be achieved into the Dutch market. Further price rises may be harder to come by due to the fallback in wheat futures values and because the discount has shrunk, although it does remain around £40/t under wheat.

• Plenty of world interest at the end of the week on feed barley

The end of this week sees tenders for barley into Tunisia for 75,000 tonnes and into Saudi Arabia for 480,000 tonnes. There is also interest from other North African countries. However, there are complications that make origins other than the UK aggressive sellers. Australia is frozen out of trade with China on barley and its next volume target is Saudi Arabia. Russian sellers are facing taxes on barley and wheat exports from mid-March onwards and are consequently endeavouring to sell as much as they can before then.

Furthermore, malting premiums are minimal in Scandinavia due to the Covid-19 pandemic, making it more attractive for them to sell feed barley coaster-size vessels (3,000 – 6,000 metric tonnes) from there, compared to the UK. The price of barley has risen but is still cheap on a world basis.Long holders need to move quantities bought earlier.

• New crop trade starts

There has been interest from farm sellers to sell at much smaller discounts than for crop 2020 at around £15-19/t under wheat prices. The discount is smaller because the crop size will drop by around 1.2 million tonnes to around seven million tonnes and the exportable surplus will also drop by nearly one million tonnes. Early new crop barley should be well sought after due to its large discount to old crop feed wheat and feed barley prices. Hopefully this will give exports a strong start. 

​OILSEED RAPE

• Recent price trend reverses

It has been an interesting week on oilseeds markets with recent trends taking a sharp reversal that leaves US soybean futures markets at 4% below the highs of last week and domestic rape prices down by £15/t. This change raises a key question: is this simply a short-term correction on markets that have recently been strong or is this the start of a more sustained drop in values?

• Rain falls in South America

The reasons for recent weakness in oilseeds markets are fairly clear. Much of the rally in prices has been fuelled by concerns over the South American harvest. However, production prospects have recently improved in Argentina and Brazil with the arrival of beneficial rains and a forecast for more before the end of January. The expectation is that this should save the later sown crops in these regions. This news has inevitably triggered aggressive selling by the fund long holders as they look to lock in their trading profits.

• Low stock issues remain

Longer term, there is still the issue of low global stocks of all oilseeds pitted against a particularly aggressive ongoing Chinese buying programme. US soybean exports continue to run at levels well above this time last year and there is no evidence that the demand into the US domestic crush is able to be limited by higher prices. Under normal circumstances, Southern Hemisphere suppliers would step forward at this time of year, but truck strikes in Argentina and a late harvest in Brazil are preventing this from happening in the short term. There has been some profit taking in recent days but other traders will be looking at current prices and seeing them as an opportunity to get back into the market at more reasonable levels. Under these circumstances, it's difficult to see why prices should continue to fall in the weeks ahead.

 PULSES

• Feed beans remain firm

This week, feed bean prices remained firm as a small uptick in demand was seen, enabling prices in and around the £220/t ex farm mark. Whilst this demand is encouraging, ultimately demand for feed beans is capped at the maximum inclusion rate in feed rations, which is much lower than wheat or barley. New crop beans values also remain positive and continue to track wheat, giving them a value of around £200/t ex farm; a value which looks strong in comparison to attainable prices at this point in previous years.

• Pea values steady

Over the last week, the pea market has seen little change in terms of ex farm values. Values for micronizing peas are nearing £300/t ex farm, but require more demand to actually hit and breakthrough that price. Feed peas also share the same demand cap issues as feed beans. Due to feed peas trading on level terms with feed beans this year, very little demand has been found. This trend is likely to continue until we see UK and EU harvests this year.

 FERTILISER

• Nitrogen

Wherever we look in the market there seems to be some real macro drivers, including strong global grain prices. The granular urea market is the main reason for all of the current volatility. An increase of $60-65/t since early January was not what buyers expected in the first quarter and these prices are now the highest we have seen since February 2015. India is still expected to push prices higher when the country returns to the market soon. UK granular urea offers are pushing towards £310/t on farm with very limited volumes offered and no further cargoes expected.

The second main driver to the market has been gas prices. Although they have dipped a little, ammonia production has also dipped, putting more pressure on downstream nitrogen production and leading to further price rises. The European nitrogen market jumped €25/t this week, leaving the UK still behind on prices which will mean less import availability in the first quarter. Imported nitrogen to the UK up to the end of November 2020 was 42,000 tonnes ahead year-on- year, but December and January shipments have slowed due to Brexit and production issues. This tonnage would supply 72,000ha at 200kg of nitrogen per hectare, which is only 4% of the current wheat crop. If imports have slipped back, there could be supply issues this spring.

• Phosphates and potash

As with nitrogen, NPKs are experiencing instability, with phosphates driving compounds and blended NPKs higher. DAP has firmed over £100/t since the summer and TSP is now starting to follow, firming £35-40/t since Christmas. Availability is still a concern as shipments are delayed and current stocks are depleting. The blenders are already looking at February and even March production for new orders. Again, we would recommend buying your spring requirements now.

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