Frontrunner - 26th June 2020

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WHEAT

• Wheat prices fall again

Wheat markets continued to fall this week, continuing the trend that coincided with the beginning of June. Improving production prospects for US wheat and corn crops are the main cause for this negativity as Chicago Board of Trade (CBOT) wheat futures fell to within a cent of contract lows set early last September. US CBOT corn futures slipped almost 6% lower during the week.

In its crop progress report published on Monday evening, the United States Department of Agriculture (USDA) put the US winter wheat harvest at 29% completed, with primary producers Texas and Oklahoma reaching 85% completion. The condition of the remaining crops also improved, jumping two points on the week to 52%, rated 'good' to 'excellent'. The US corn crop, now all planted, enjoyed favourable weather conditions during the week, with no reports of any stressed crops. The condition score moved up one point to 72%, rated 'good' to 'excellent', which is well ahead of the 56% score it achieved this time last year.

It is entirely possible yield estimates may exceed those originally made by the USDA, which predicts the US crop will reach 406 million tonnes - up 60 million tonnes on the year. An increase in ethanol production, up 6% on last week, is encouraging for the market. Ethanol production rates are continuing to improve since the collapse in fuel demand three months ago following the outbreak of Covid-19. Yet, while production rates are up, they are still almost 17% lower than the rates at this time last year.

• International Grains Council increases world supplies

The International Grains Council increased both world wheat and corn production in its June report this week. It sees wheat up two million tonnes on last month, to a total of 768 million tonnes. This is six million tonnes up on last year. An increase for China to 135 million tonnes and for Australia to 26.2 million tonnes – up from 15.2 million tonnes last year – outweighs the cuts the Council predicts for the EU.

World stocks for the end of the 2020-21 season remain unchanged at 290 million tonnes. However, it is important to note that year-end wheat stocks for the major wheat exporters were cut back by three million tonnes to 65 million tonnes. World corn production increased by three million tonnes, which brings the production total to 1,172 million tonnes. Stocks are up eight million tonnes to 296 million tonnes.

• Ukraine may restrict wheat exports

The Ukraine will be the world's fifth largest wheat exporter this season, shipping over 20.5 million tonnes. However, a smaller 2020 crop will leave the same prospect unachievable next season. The Ukrainian Department of Agrometeorology dropped its wheat production estimate for the country down to 24.5 million tonnes, which is two million tonnes below the estimate from the USDA.

The lower production estimates have lead the Ukraine government to propose introducing a quota, limiting shipments to 17.2 million tonnes. This would be three million tonnes below the quota set for the current season, which was exceeded at the beginning of June. However, the news was largely ignored by the markets. Russia recently stated it would restrict wheat exports in the second half of next season from 1^st January to June 30^th 2021, but would review this after harvest is complete.

• EU wheat crop continues to fall

The EU Commission made significant cuts to the EU-27 wheat production estimates for 2020 and now predicts the crop will reach 117 million tonnes - 4.3 million tonnes lower than the estimate in its previous report. This compares with 130.9 million tonnes for 2019-20.

The Commission cut French production estimates down to 30.3 million tonnes. If you included the UK in this data, the-year-on year production drop would be over 20 million tonnes. EU-27 exports this season are placed at 34 million tonnes, but next season's estimate, at 25 million tonnes, looks hopeful. This is especially true given that the estimate leaves a year-end stock of just 6.6 million tonnes, which, if used at the levels forecast, is less than a three-week supply and unlikely to be sufficient to meet consumer needs.

BARLEY

• Markets quiet as harvest approaches

With hot and dry conditions seen over the last week, the UK winter barley harvest is expected to begin as early as next week on some of the lighter land in eastern and southern parts. There is still plenty of uncertainty regarding the impact that the dry weather seen from the end of March to the middle of May has had on yields and quality, which will be assessed over the coming weeks.

Barley harvest has begun across most regions of France, with mixed reports on yields and grain quality so far. UK feed barley values have trended weaker this week in line with weaker wheat markets. It has maintained its discount to wheat at circa £31-£33. Last week's tenders into North Africa and Saudi Arabia have fulfilled some of the short-term global barley demand with markets quieter on the eve of harvest.

• Pub demand to return from July

As the gradual lifting of lockdown across the UK and Europe continues, it was announced earlier this week that pubs in the UK would re-open from the 4th of July. The precise details of how this will happen are yet to be outlined, but the reality is that malt demand will remain far from normal. This week marked three months since the closures of pubs and restaurants, accounting for a quarter of the year – this demand cannot simply be picked up over the coming weeks now that the sector has opened up. Indeed, the impact of pub closures is likely to be felt for the sector throughout crop 2020. 

​OILSEED RAPE

• Flat domestic markets

A 1% drop in the value of European rapeseed futures this week has been offset by a slight weakening in the value of sterling, leaving domestic trading levels largely unchanged. The low crop outputs that are forecast for the forthcoming UK and European harvests are a well-known factor and largely reflected in current trading levels. Crush volumes are expected to be lower also, with the overall demand for imports expected to be left similar to those required in 2019/20, which were at a record high. New crop prices are already aligned with the cost of imports, leaving currency movements and changes in the wider oilseeds markets as the likely drivers of change in the near-term.

• Ample global oilseeds supply in 2020/21

Inevitably, talk in the market is very much centred on what is happening in Europe and the Black Sea countries, which is the key focus for our import requirements in the UK. Production of rapeseed from both these regions is expected to be 3% and 8% lower this year respectively, but all of the other major producers, including Canada, USA, China, India and Australia, are expected to have larger crops in 2020/21. When it is taken into account that a record global soybean crop is expected in 2021, it's clear that long holders need to be cautious about being too ambitious on long-term prices, despite some recent recovery in demand.

• USDA plantings report will be released next week

In the short-term, emphasis will remain on weather and trade politics, particularly between the US and China. The situation in China is hard to predict, but weather forecasts have recently turned favourable in a lot of key production areas which has helped to keep the bellwether US oilseeds futures markets on the defensive. One key factor may become clearer next Tuesday when the USDA publishes its June stocks and planting report, which should give traders a good picture on the acreage that US farmers have put into soybean production for the forthcoming harvest.

 FERTILISER

• Nitrogen

With higher prices for granular urea being traded out of North Africa and increases for ammonium nitrate in continental Europe, it wasn't going to be long before UK manufacturers looked to raise their own prices. This week, CF Fertilisers increased prices for its main nitrogen grades by £7 per tonne with limited volumes available in the June-August period, no availability in September, but plenty of capacity for October. Yara followed suit very quickly and we are also seeing imported products offered at levels closer to these new prices.

The liquid market has been very active, with most customers taking advantage of very attractive offers for Autumn tank fill. This initial price has also begun to be withdrawn and, as with the solid market, the next offer is expected to reflect higher market levels but with an option to book spring requirements available.

There has been quite a bit of interest in late-season foliar nitrogen products for application to crops which picked up some of the recent rains but didn't receive a full nitrogen dose due to the dry spring.

• PK's

The PK market has eased a little over the week with low demand and slight weakness in MOP/TSP/DAP replacement numbers. As harvest gets closer and fields are cleared, demand may well pick up and prices could firm.

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