Frontrunner - 23rd July 2021

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WHEAT

• US spring wheat worsens

Persistent hot and dry weather continues to damage spring wheat crops in the northern US states, particularly North Dakota and Minnesota. Weekly crop condition ratings slipped to 11% rated 'good to excellent', which is just one point above the worst condition rating on record in 1988. The area rated 'poor to very poor' increased on the week to 63% from 55% and this data propelled US spring wheat futures to new contract highs - their highest level since November 2012. The weather forecast signals little relief for parched crops and similar problems persist in the Canadian prairies. In its July World Agricultural Supply and Demand Estimates (WASDE) report the United States Department of Agriculture (USDA) cut its Canadian wheat crop estimate by just 500,000 tonnes to a new figure of 31.5 million tonnes, which compares to 35.18 million tonnes produced in the previous season. However, some see Canada producing as little as 25 million tonnes, an estimate which tightens global supply of high-quality bread making wheat.

• Wheat and corn markets slump

The increasing likelihood of crop losses for some of the world's primary wheat and corn producers helped markets gain 10% in value from last week's lows. However, concerns around levels of demand triggered a bout of profit taking on US markets during the second half of this week. In response to conflict between refinery workers and corn farmers, the White House has delayed an annual process which determines how much ethanol and other biofuels must be blended into US fuel. Some refiners want to be exempt from the obligation to blend corn-produced ethanol into fossil fuels. However, any relaxation of this regulation might reduce demand which would negatively impact prices; over a third of US corn output is currently consumed in this market. Corn weekly export sales were poor, adding to the bearish sentiment. Due to order cancellations, export sales were a just 40,700 tonnes; the lowest volume since July 2012 and the second worst on record. This highlights the lack of fresh demand. China has been noticeably absent from the market in recent weeks and comments around expectations for a bumper grain harvest may hold some credibility.

• Possibility of lower output for major wheat producers

The Ministry of Agriculture of the Russian Federation has published its latest wheat harvest data which shows average wheat yields up to the 21st July down to 3.45t/ha compared to 3.47t/ha last year. In any normal year yields get worse as harvest progresses, which is a cause for concern in the face of these predictions. However, yields did continue to improve last year in an exception to this trend. Harvest progress has now reached 23.4% of the expected area in comparison to the 27.9% progress achieved at this time last year. If last year proves to be a one-time exception and yields now fall away as they have in previous years, a wheat crop below 80 million tonnes is possible, which would be well below the latest USDA estimate of 85 million tonnes.

The French wheat harvest has progressed this week, with more settled weather and reports of improved quality. However, analyst group Stratégie Grains has made a small cut to its French wheat production estimate. It has reduced its prediction from 38 million tonnes in its monthly report last week down to between 37-37.5 million tonnes in its new estimate. The change is due to poorer-than-expected yields in the northeast of the country.

Heat and dryness issues for Kazakhstan has led its government to introduce restrictions for feed wheat exports and other feed stuffs. The restrictions will be in place for six months from the 15^th August and highlight the seriousness of the impact of drought in the country.

However, southern hemisphere wheat production potential is more encouraging at this stage. Australia is still enjoying widespread rainfall across major production areas and in Argentina the Rosario Grains Exchange reported that beneficial weather enabled farmers to increase their planted area for the 2021-22 harvest. Subsequently, the Rosario Grain Exchange has increased its crop estimate from 20 million tonnes to 20.5 million tonnes.

BARLEY

• Harvest begins in England

Harvest has started across England with winter barley being harvested last weekend in the south and progressing east and north over the week given favourable harvest conditions. The start of harvest is about a week later than average in the south of the country but yield reports nationwide so far are generally in line with expectations although quality has been mixed. There are no moisture issues at this stage given that most parts of the UK, with the exception of some localised thunderstorms in East Anglia, have seen no rain for over a week. Bushel weights in the south have been lower than average, but we are still in the first few days of the winter barley harvest. Harvest is yet to begin in Scotland but some progress is expected next week in line with the average timeline.

• Start of harvest brings end to old crop barley premiums

Any premiums for old crop barley quickly disappeared at the end of last week as the warm and dry weather brought harvest forward. With a smaller than average carryover from crop 2020 due to the significant premium old crop had to new crop, there has been good demand for early barley to compound homes, ports and to store. Export demand is also strong for the harvest position given there was a similar scenario on the continent where old crop was at a significant premium to new crop values.

Domestic values rallied at the start of the week on the back of firmer global grain markets but have since fallen as the bulls look for news beyond the unfavourable conditions in the US, Canada and central Europe. Barley's discount to wheat has widened to £17-18/t but the discount is anticipated to narrow back to around £15/t, particularly if wheat values move lower.

​OILSEED RAPE

• Nervous markets

Another week has slipped by and new crop rapeseed prices are mostly unchanged although over the last seven days values were at one point £10/t higher and this largely sums up the mood of the market: nervous at these historically high levels and undecided about where to move next. Most analysts are agreed that there will be a substantial rebuilding of global oilseeds stocks in 2021/22 after two years of deficits, with soybean production leading the way. However, world production of rapeseed and canola will fall well below expectations with the predicted drop in Canadian production only partly offset by crops that are larger than initially expected in Europe, Ukraine and potentially in Australia.

• Canada continues to toil

Much of the talk in rapeseed markets in recent weeks has centred on Canada and the prospects for its canola crop. This focus is absolutely as it should be given the severity of the country's drought and the fact that in a normal year Canada accounts for around 60% of global rapeseed trade. The scale of the drought and heat is historic and photographs doing the rounds suggest that much of the Canadian crop is being decimated by the dry conditions. The number of seed pods is down, the number and size of the seeds in the pods is down and it is unknown at this stage what impact conditions may have had on oil content. Of course, rapeseed is just one part of the larger oilseeds complex and there is a limit to the extent that rapeseed prices can act independently. Consumers will look to switch to cheaper oil sources if they can and their ability to do this will be a large factor in determining where this market is heading.

• The UK makes a start on harvest

The UK rapeseed harvest has made a start in recent days with weather conditions helpful and progress moving north as forecasts continue to see only scattered showers through to the end of the month. Early supplies are continuing to head direct to the crush and we might be into August before the market sees much of a move into central stores for delivery later in the season. It is a bit too soon to talk about yields but early reports suggest that to date they have been in the range of 2-4.5t/ha. There is currently no data on oil content.

 PULSES

• Market on weather watch to determine pea colour and quality

The recent hot weather has put some pressure on the pod filling of later drilled crops, especially spring beans. Early drilled pea crops are now ripening very quickly. Hopefully the forecasted rain doesn't do too much damage in impacting on pea colour as it can result in the pods becoming pale and translucent. If yields of vining peas are any indication, a much better harvest of spring field peas this year can be expected. However, as ever, the weather is the key to good quality. With a carryover of old crop large blue peas and a larger harvest anticipated, early values are likely to be in the lower range of the pre-arranged buy back contracts at £225-235/t for the best colour peas.

 FERTILISER

• Nitrogen/urea

In general, it's been a slow week for nitrogen in the UK as the focus turns towards this year's harvest. Yesterday, Yara France increased its 33.5% ammonium nitrate by €10/t for current September deliveries due to increased raw material costs, namely natural gas and ammonia. This now places UK ammonium nitrate at a large discount to European markets; a gap that is likely to narrow very soon with domestic producers suffering the same raw material cost pressures.

Urea markets remain firm with Chinese supplies absent from the market due to high production costs. There are growing signs of tight physical supply, as demonstrated by the reduced tonnage offered on the current Indian tender.

Some countries are already making enquiries or are taking ammonium nitrate in place of urea due to current cost benefits, adding pressure to ammonium nitrate values and reducing supply in traditional markets, including the UK.

It's reported that no changes in gas prices are expected as we move into the fourth quarter. It's therefore recommended that growers look at their nitrogen requirements ahead of the next price rise.

• PKs

European and UK phosphate levels continue to rise to reflect replacement costs, but prices are starting to stabilise in South America as demand settles out. However, it's unlikely that prices will fall, as other buyers, including India, will still require large volumes from August onwards.

Potash prices will rise sharply as global demand kicks in and it wouldn't be surprising if MOP values reached £400/t in the UK, given the values they're trading at in other parts of the world.

Growers are advised to discuss requirements with their Frontier contact as early as possible to avoid higher costs for straight DAP, MOP and PKs and to look at the alternative grades for autumn drilling available.

• Haulage

The widely reported shortage of drivers in the UK haulage industry is already adding some pressure on the fertiliser supply chain. The shortage has at least partially been caused by an increased number of people being required to isolate due to the coronavirus.

It is difficult to predict how the situation will unfold but Frontier is advising growers to plan their spring product requirements for delivery as soon as space on farm allows and definitely before the end of November. This will help secure requirements and avoid further potential supply problems later this year/early next year.

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