By Frontier Trading Desk on Friday, 24 June 2022
Category: Market information

Frontrunner - 24th June 2022

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World wheat futures have fallen sharply this week, as highlighted by the US Chicago Board of Trade (CBOT), for which wheat values declined almost 9.5% since last Friday's close. These losses have been driven by fears of demand destruction in light of failing economies, unaffordable high commodity prices and grain that remains trapped in Ukraine.

You can also listen to the Frontrunner podcast - press play to hear the latest report. The report this week is read by marketing assistant, Faye Lee.

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WHEAT

World wheat futures have fallen sharply this week, as highlighted by the US Chicago Board of Trade (CBOT), for which wheat values declined almost 9.5% since last Friday's close. These losses have been driven by fears of demand destruction in light of failing economies, unaffordable high commodity prices and grain that remains trapped in Ukraine. The British Foreign Secretary, Liz Truss, has said the UK Government is working with Turkey to release grain and that if the issue is not resolved, it could lead to global hunger. The next month is critical.

Meanwhile analyst group IKAR increased its Ukrainian wheat production estimates from 17.1 million tonnes to 18.2 million tonnes and increased its corn production estimate from 48.3 million tonnes to 52.4 million tonnes. It has said that exports could reach almost 40 million tonnes; 13.2 million tonnes of wheat and 25.7 million tonnes of corn. However, export relies on shipping from Black Sea ports. A Ukrainian official has advised that the current situation will allow for a maximum of two million tonnes to be exported a month.

One of the key factors influencing world wheat prices in recent weeks has been the mixed fortunes for India. Early indications had been that the country would produce a near-record wheat crop and undertake a robust programme of export. June estimates from the United States Department of Agriculture (USDA) put the 2022-23 crop at 106 million tonnes, which would allow for exports of 6.5 million tonnes. This was anticipated to help replace lost Ukrainian supplies on the world market and major wheat importer Egypt rushed to approve Indian wheat supplies. However, the extreme heatwave seen in March caused greater damage than anticipated and Indian wheat yields are now expected to hit a 20-year low. Some see the crop falling to little more than 80 million tonnes based on this yield data, which means India could be left with a significant import requirement.

Recent severe heat has led Spanish cooperatives to cut the country's production estimate to 5.06 million tonnes down from 7.45 million tonnes last year. All cereal production is seen 27% lower on the year at 17.61 million tonnes. In its latest June estimate, analyst group Stratégie Grains estimated Spanish wheat production at 5.87 million tonnes so subsequent adjustments need to be made. However, some of these losses could be made up from Bulgaria whose wheat crop is expected to reach between 6.5-6.7 million tonnes. Although this figure is below last year's 7.1 million tonnes, it is well above the 4.7 million tonnes produced in 2020. The estimate from Stratégie Grains is at 6.19 million tonnes.

The French Minister of Agriculture said the impact of the heatwave on French cereal crops should be limited as it is arriving at a late stage in the season and this week's crop ratings slipped only one point to 64% rated 'good/excellent'. The EU's crop monitoring service, MARS, lowered its estimate for the EU's average soft wheat yield due to the dry weather. It has cut its estimate from 5.89 million tonnes to 5.76 million tonnes, which would see the crop 4.7% lower than last year; around 2.8 million tonnes less.

In its latest world supply and demand estimates report, the International Grains Council (IGC) left wheat production unchanged at 769 million tonnes but increased its world corn production estimate by six million tonnes in light of increases in the Ukrainian estimate. The world corn production estimate is now at 1.19 billion tonnes, which compares to 1.219 billion tonnes last season.

BARLEY

A lack of buyers in most agri-commodities around the world at the start of the week broke trade confidence and sent prices tumbling. This comes in addition to pressure from the quickly progressing Brazilian grain maize harvest and US winter wheat harvest (now 80% complete). The progress in these harvests have added to a sentiment that supply chains are being refilled with product.

These factors coincide with rising fears that inflationary price pressure will reduce public consumption in the months to come. However, farm selling has been muted this week and the market awaits to see how weather will affect the important US maize crop.

After a £70/t drop from the highs of the futures markets, it will be interesting to see which buyers see this as a buying opportunity next week.

Over the last ten days or so, more Ukrainian grain silos and port export terminals have been severely damaged. While there are talks of various grain export routes being opened, successful exports from Ukraine may be some way off as even if routes are opened, the damage to the country's infrastructure will remain problematic.

It is still possible to get £350-370/t ex farm for malting barley for harvest to December positions depending on location. This is a massive premium over feed barley today. Values remain high because of very low carryover stocks from last harvest around the Northern Hemisphere. Big commitments have already been made by malting barley growers in Scandinavia and France with up to 70% of the predicted harvest already sold. However, there is a reluctance by UK farmers to commit more in advance of seeing combined samples. For those with available malting barley stocks, the current premiums represent a good opportunity to market.

​OILSEED RAPE

An almost unbroken 18-month bull run on rapeseed prices dating back to December 2020 has dramatically come to an end over the past month. Paris futures for November 2022 peaked in the middle of May at over €870/t and currently sit just below €700/t which represents a fall of around £150/t. Markets have been pushed lower on a combination of factors, including weak palm oil markets following a relaxation of export controls in Indonesia, plummeting energy markets with the S&P 500 Energy Index posting a 16% loss last week and negative economic news out of China as Covid lockdowns loom.

However, it is too early to start talking about a long-term bear market in global oilseeds. The weather outlook in North America, Europe and the Black Sea looks increasingly threatening just as crops are entering a critical period. Slightly cooler and wetter weather is forecast for Europe in the short term, but a return to hot and dry weather in the first half of July will cause a further expansion in the drought-affected areas. Looking ahead, there appears to be no chance of an early end to the conflict in Ukraine or the opening of an export corridor in the Black Sea. Add in the probability that China will need to return to the market sometime soon to rebuild stocks, then a resumption of the upward price trend can't be ruled out.

Most European supply and demand models currently include 2.65 million tonnes of Ukrainian rapeseed finding its way into the EU via road and rail links. This feels optimistic given the volume of other commodities that need to be exported and any possible reaction from Russian forces. If a substantial volume of Ukrainian seed doesn't move west, then prices will have to rise again to either choke off demand or attract in seed from elsewhere. Taking into account the probability that China will need to return to the market sometime soon to rebuild its own oilseed stocks, a long-term bear run looks increasingly unlikely.

 PULSES

Pre-harvest bean values have eased back in the past month in line with all other combinable crop prices. This time last month growers in many parts of the UK could have forward sold at around £350/t ex farm basis feed quality. However, values are currently quoted at close to £30/t below this peak.

Bean crops are developing well in most parts of the country. Winter bean seed certifications were sharply higher and the provisional spring seed figures suggest an increase in plantings of around 11%. Beans appear to have benefited from a strong market, ongoing issues with other break crops and big cost savings from a legume crop that eliminates the need for expensive nitrogen. Next month the Agriculture and Horticulture Development Board (AHDB) will publish its planting survey which will give the first reliable information on 2022 harvest bean sowings. Trade estimates are currently putting the planted area at a possible record 200,000 hectares.

 FERTILISER

Prices in the UK remain largely unchanged for nitrates, with very low demand after the early campaign back in May. With UK gas prices increasing above £2/therm, the appetite from CF Fertilisers and other importers to chase business has disappeared for now. European gas prices are also back to levels that make nitrate production once again uneconomical. The imported offers to the UK were looking very tight but following the announced closure of the CF Ince plant and with gas prices over £2/therm, finding nitrogen and nitrogen sulphur products in the fourth quarter will be challenging.

The news regarding the gas market late last week was all that was needed to spark some life into the granular urea market. In a week, the Egyptian granular urea price has firmed by over $100/t and now India will look to come back in very shortly, potentially pushing prices higher. Sales are now being made for July/August shipment so producers are less inclined to move levels lower as we get closer to the autumn and winter months.

Earlier this week saw UAN terms released for February-March 2023 delivery with nitrogen sulphur and straight nitrogen grades available on a limited tonnage. This offers existing UAN users the opportunity to cover a percentage of their total spring requirements. Autumn offers are still in the marketplace for growers looking to fill tanks ahead of spring usage or where product is planned for application as OSR establishment, and tanks will have capacity for additional product to be delivered this autumn. With wheat crops full of potential and milling wheat premiums at significant levels, please speak to your Frontier contact for further advice and information on the foliar products available for spot delivery.

A few offers are still around in the market for MOP June delivery at slightly lower numbers than the £760/t which is the current June/July offer. TSP/DAP offers are unchanged with no new interest from farm at these levels. Please speak to your Frontier contact for more information on all offers.


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