Frontrunner - 2nd September 2022

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WHEAT

• Corn crop losses keep wheat prices firm

Wheat futures moved sharply higher earlier this week, although prices remained in the trading range that has prevailed for the past two months. Traders reacted to lower corn production estimates for both the US and EU, the result of prolonged dry and hot weather conditions that have proved damaging for yield potential.

The Pro Farmer Crop Tour concluded with a 2022-23 estimate of 13.759 billion bushels for the US crop. This figure would be the smallest since 2019 and is well below the United States Department of Agriculture (USDA) August World Agricultural Supply and Demands Estimate (WASDE) of 14.359 billion bushels (364.73 million tonnes).

French corn crop ratings fell again last week - down two points to 45% good/excellent in comparison to the 91% good/excellent rating at the same time last year. Analysts Agritel reduced its French corn production estimate to 10.8 million tonnes, which would be the lowest for over 20 years and well below last season's 15.5 million tonne crop.

• EU wheat export continues at a fast rate

EU wheat export data from Brussels is still incomplete and this week its update put shipments up 1.111 million tonnes to a total of 4.863 million tonnes. Individual port data, however, suggests the official numbers are between 1.2 to 1.5 million tonnes behind the actual amount of EU wheat shipped, masking the strength of international demand for EU wheat. With the EU corn crop in decline, domestic use for wheat in feed rations will likely increase further and tighten the EU balance sheet. US trade data is also lacking following the switch to the new data system. USDA officials said it will take until mid-September before US wheat export sales volumes are updated. Record Russian wheat yields are leading to an increased volume of cheaply offered wheat in export markets. Traditionally, Algeria sources most of its imported wheat from France, but it is reported Russian wheat was offered $10-$15 below EU wheat offers resulting in 100,000 tonnes being sold to the North African country this week.

• Lower Ukraine wheat production

The Russian invasion of Ukraine continues to impact the country's agricultural production potential and observers see that extending into the 2023-2024 season. A lack of funds could see a further decline in the wheat planted area of between 30-40% to around 3.8 million hectares, coupled with lower yields as fertiliser use declines. The 2023 wheat crop is likely to be in the region of 15 million tonnes versus the estimates for the current season which are between 19-20 million tonnes, and is a considerable contrast to the 2020 record wheat harvest of almost 33 million tonnes. Domestic demand is between nine and 10 million tonnes, which suggests the country will still be in a position to export wheat provided shipment routes remain open. This week, officials said the Black Sea corridor to export Ukrainian grain is currently operating normally, despite a counter offensive by Ukraine military forces on Russian-held territory in southern Ukraine.

BARLEY

• Export demand for feed barley muted

Domestically, feed barley is continuing to trade between a £14-£17/t discount to feed wheat, depending on location. Farmer selling is slow as harvest is nearing completion in Scotland and with drilling beginning in England. Some domestic demand does exist but the impact of higher grain prices, particularly from April to June, has had an impact on UK animal feed production. The AHDB published data earlier this week and stated July 2022 feed production was down 8% from the year before, with barley usage in these rations significantly lower than the previous year. Export demand for UK feed barley is non-existent, despite recent rises in futures markets and with sterling weaker against both the euro and the dollar. UK barley export levels are expensive when compared with other northern European origins to access the Spanish and Portuguese markets. Meanwhile, demand from Ireland is limited given a good Irish barley harvest combined with the 'hand to mouth' purchasing from all importers in this volatile market.

• Limited fresh demand for malting barley

Domestic malting barley buyers have largely vanished from the market whilst export interest is few and far between. As a result, domestic malting barley values are dropping to export levels given the high pass rates of UK spring barley this harvest. Today, premiums over feed sit at around £35/t in East Anglia and £20-£27/t on the south coast, but with the UK facing a potential cost of living crisis these premiums over feed could get smaller. 

​OILSEED RAPE

• Prices stuck at seven-month low

There has been little change in UK rapeseed prices over the past week as they remain at a seven-month low. Farmers are pricing some parcels which are on merchant crush or store schemes, but other than that there is a reluctance to come to market with prices sitting at more than £200/t below levels seen just three months ago. Buyers, on the other hand, view a much better supply situation in 2022-23 and see no necessity to bid up values beyond where they were this time last year when the situation surrounding the Canadian crop was becoming clearer.

• Canadian production sharply higher

In a normal year, Canadian canola dominates global trade in rapeseed and rapeseed products. Last year's drought-ravaged crop was 6.58 million tonnes below the previous harvest, but most commentators predict a seven million tonne rebound in the 2022 production figures. China is the major swing factor in the Canadian market. It is expected that disposals to China in 2022-23 will be sharply up, but the final picture is not clear due to weak demand and a range of political or 'non-tariff' barriers to trade. If Canada struggles to find homes for its extra production in 2022-23, then end of season stocks will build and prices will suffer.

• Unpredictable politics

Ukraine is the other turnaround story in recent months. Traders in the spring factored in a sharp fall in production due to the impact of the war with Russia and the likelihood that there would be no shipments possible through the Black Sea ports. However, with harvest now complete Ukraine has managed to lift production of rapeseed from 2.8 million tonnes last year to an impressive 3.1 million tonnes this year. Currently, global markets have benefitted from shipments being able to pass through the Black Sea but this is clearly a political arrangement that could change rapidly. With ample supplies and weak demand as the world's economies slow down, rapeseed prices look destined to drift lower but a shift in the political climate could trigger a change in market sentiment.

 PULSES

• Bean market follows wheat

The bean market continues to follow wheat but there are a few hot spots where shippers are looking to cover short positions. Given this and the lack of domestic demand, there is no carry in prices from the spot positions. With an increasing number of bean samples failing to make the grade for human consumption, it looks like the supply of feed beans is getting bigger by the day and will start to put pressure on forward values. Interest for the few samples that are suitable for human consumption will soon wane as, yet again, there is a very big Australian crop that will be harvested in November ready for shipment to Egypt in December and January. 

 FERTILISER

• AN/Urea

Volatile gas prices in Europe continue to cause concern as spot levels fluctuated between £4.50/therm and £7.00/therm, with highs of up to £8.50/therm for winter supply. Manufactured ammonium nitrate requires natural gas to be converted into ammonia. However, this process has now proved temporarily uneconomical for most, which has caused approximately 70% of all ammonium nitrate production in Europe to be curtailed. Ammonia from regions outside of Europe is cheaper to produce due to gas prices being eight to 10 times lower in value. Therefore, those that can are looking to import product to fulfil current order books but no new offers seem likely soon.

With AN absent from the European market, the supply chain is buying alternatives - mainly in the form of urea or protected urea. With this increased demand and with urea producers aware of the high production costs for AN due to gas levels, prices have moved up and hit $1,000/t delivered bulk ship to the UK. Poor exchange rates for the pound to euro are at 1.16 – this is also unwelcome news for UK growers.

India has returned to the market this week for 1.2 million tonnes of urea, underpinning the market at current levels whilst availability of product is assessed and the tender is met.

Please talk to your Frontier contact for product selection and supply security.

• Liquid