Frontrunner - 4th August 2023

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WHEAT

• Wheat lower again

Wheat futures prices continued to fall this week, dampening any signs of trade activity much like the UK weather is doing for harvest progress. Despite ongoing uncertainty surrounding Black Sea wheat supply, US Chicago Board of Trade (CBOT) futures fell again on Thursday for the seventh consecutive trading day. This wiped out all the gains made since 17^th July when Russia withdrew from the Black Sea export corridor deal with Ukraine. Russia has continued to launch drone strikes on the Ukrainian Black Sea Port of Odesa and River Danube grain loading terminals, Reni and Izmail. However, it would seem markets have become immune to any potential supply chain disruptions this might create, with the EU also stating it would fund an initiative to create export lanes for Ukrainian grain through EU member states to ensure a continued flow to the nations which need it.

Meanwhile, Russia continues to dominate world export trade, capturing the lion's share of sales to Algeria and Egypt this week. Algeria is thought to have bought close to 600,000 tonnes of Russian wheat and 300,000 tonnes from Egypt in its first tender for over 90 days. Prices before freight were set at $250/t which would appear to be a floor price for Russian sales. Romania has secured sales to Tunisia and a sale for 60,000 tonnes to Egypt. However, primary EU wheat exporter France was around $20/t away from being competitive, leading to the negativity in European futures markets.

• India needs wheat

Many have questioned official Indian wheat production estimates, along with the United States Department of Agriculture (USDA) which sees a crop of 113.5 million tonnes up 9.5 million tonnes on last year. Adverse weather is thought to have resulted in yield losses and a recent ban on Indian basmati rice exports heightened concerns for the country's domestic food supplies. This week, it has been reported in the Indian financial press that a possible government-to-government deal has been done with Russia to import nine million tonnes of Russian wheat. This is probably needed before the next Indian harvest; suggesting one million tonnes per month accounting for over 20% of the expected Russian wheat exports this season. Currently, the USDA estimates India will import just 100,000 tonnes of wheat and if the story proves accurate there would be a significant tightening of wheat supply in the world balance sheet. The news has passed with no impact on world prices at this stage, but official confirmation could lead to a sharp price reaction.

• Upbeat US corn yield prospects add to price gloom

Recent weather has been mostly beneficial for US corn yield prospects despite a decline in this week's crop ratings. The US weekly crop progress report had a drop in condition for US corn - down two points on the week to 55% rated 'good/excellent' which compares to the expected 56% and sits behind the 61% rating last year.

However, analysts believe the national crop will achieve a yield of 177 bushels per acre, which is just behind the USDA estimate of 177.5 bushels per acre. With an expected harvested area up seven million acres on the year, the USDA production estimate is up over 40 million tonnes on the year to a total of 389.15 million tonnes. End stocks are expected to rise by 22 million tonnes, even with exports reaching 53 million tonnes which will be up 11 million tonnes on the year if achievable. Unfortunately, US 2023-24 corn export sales sit over 30% behind last year at this stage, so there is plenty of work to do to eat into that additional surplus. 

BARLEY

• Winter barley harvest nearing completion

Despite more unsettled weather across the UK since last weekend, the feed barley harvest is nearing its completion south of The Wash. Northwestern regions and particularly Yorkshire have had the greatest disruption to harvest progress; ordinarily we would expect harvest to be around 75% complete with a similar percentage cut in Scotland.

Yields have generally been good and slightly above average, although not as high as last year. Given the disruptive weather, we have once again seen trade buyers in the spot position looking to buy in short-term sales. There has also been some compound demand given the lack of new crop wheat availability and barley's discount to old crop wheat prices. Export demand remains limited, with the UK finding stiff competition from other European origins, namely Poland.

Domestically, there has been demand from the compounders on the week looking to cover in some of their October to April winter demand, at an approximate £21/t discount to wheat and at prices probably £15-18/t lower than the higher prices we saw ten days ago.

• Spring barley harvest progressing slowly

With feed barley base prices falling around £10-£15/t on the week, the premium for malting barley has widened to around £70/t in the spot and £80/t for the October-December positions. Early spring barley samples have been encouraging but the market is waiting to see the impact of rain on Wednesday. With more downpours forecast for Saturday, very little combining has taken place anywhere in the UK in the last three days. As premiums are so high, prioritising spring barley harvesting looks like a good strategy today. 

OILSEED RAPE

• Rapeseed prices experience losses after last week's gains

During the last week, the rapeseed market has been subject to losses of around £30/t in UK ex farm. This happened after the sharp gains in the week prior due to the non-renewal of the Black Sea grain corridor. The losses are the result of market participants contemplating the true effects of the situation in Ukraine. Currently, vessels continue to be loaded and are exiting the area which is giving crushers in Europe confidence that they will be able to take delivery of the rapeseed they were expecting. In combination with this, nearby crusher cover is strong with the additional pressure of freshly harvested rapeseed that is looking to find quick movement. If this movement of vessels out of Ukraine stops, there would clearly be a disruption to the supply chain that rapeseed consumers are currently reliant on - prices may need to rise as alternative supply would need to be sourced.

Europe looks to have harvested a relatively high yielding and high oil content crop. Crop watchers now turn to Canada and Australia (between them they produce similar tonnage to the EU) where crops have plenty of time left to develop. Memories of a 21/22 crop in Canada that saw harvested levels near 40% of initial expectations were starting to resurface as dry conditions persisted. However, more rains have arrived in the North to ease those fears. Farmers will be hoping for the same in the South of the country.

 PULSES

Much like last week, the main focus of the market is the ongoing wet and cool weather with constant rain delaying the harvest. The markets have continued to follow wheat lower due to the lack of bullish news. 

 FERTILISER

• AN/urea

Global urea buying has slowed, as main producers in Egypt remain out of the market whilst their 30% restriction on gas supplies continues. Following last week's sharp increases in UK urea markets, we saw other global markets including Brazil and the Gulf Coast of the United States have sharp gains in urea values. There is no short-term sign for urea levels easing whilst production is low and the latest Indian tender is still on the table.

There has been another week of upward volatility in the ammonium nitrate (AN) market due to mainland European nitrogen terms getting pulled (again) and reissued at +€40-60. It was expected that importers into the UK and domestic production would also increase offers to reflect this. However, they have reissued terms up £10-15/tonne which is well priced in comparison to Europe. It is likely that UK AN will continue to climb towards levels that reflect elsewhere in Europe, as we still remain in a nitrogen market that is lacking supply.

• Liquid

Both autumn and spring terms remain unchanged within the market at the time of writing. However, following the recent changes in the solid nitrogen market, any liquid buyer would be well advised to look at both autumn and spring fill at current levels, which demonstrate good value. Secondly, it's important to be mindful that these terms could get withdrawn at any time.

There is a continued demand of nitrogen phosphorous liquid for oilseed rape establishment as growers slowly progress through harvest, but we would advise not to delay any purchasing decisions owing to the instant demands of planting.

• PKs

UK markets dipped to their lowest level since spring 2021 and were below that elsewhere in Europe. The view is that they had stabilised and were at the 'bottom'. This had therefore encouraged some buying from both importers to cover product shorts and likewise from growers for usage in crop 2024. PK levels have in recent days moved up by £10-15, following this buying spike. As buying continues and volatility ensues, we would advise you to start thinking about covering inputs for crop 2024. 

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