Frontrunner - 5th November 2021

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WHEAT

• Wheat futures hit record highs

Wheat markets have continued to go from strength to strength. Future markets have moved sharply higher, with price gains of over 25% since early September. This rise has been driven by wheat production losses for major exporters Canada, US and Russia and by a loss of French quality amidst strengthening demand.

Official EU wheat export data is not fully accounting for all shipments, but private estimates suggest that the EU will have breached 11 million tonnes by the end of October. Ukraine has exported 12.4 million tonnes of wheat in the first four months of the season, which is half the country's annual quota. Despite prevailing high prices, there is no evidence of slowing international wheat demand.

This week, Saudi Arabia tendered for 660,000 tonnes of wheat but shocked markets by doubling up and confirming the purchase of 1.3 million tonnes of optional origin wheat. This was the catalyst for a further futures price rally which took European wheat futures to their highest level on record.

• Upbeat production prospects for Argentina

Tightening global wheat supplies mean a successful harvest in the Southern Hemisphere is essential to stabilise world prices. Last season's adverse weather significantly cut output for South America last year. However, prospects this season look more upbeat, particularly for Argentina, where timely rain is helping wheat crops develop and corn planting to advance. The Buenos Aires Grain Exchange expects wheat output to reach 19.8 million tonnes - up from 17.65 million tonnes last season - which would allow exports of 13.5 million tonnes. The wheat harvest should be complete by the end of January.

Corn planting in Argentina has advanced to almost 30% complete and leaves a crop estimate of 55 million tonnes, five million tonnes up on last season. Meanwhile, Australia is expecting a second consecutive bumper wheat harvest.

• Relief for Ukraine dry soils

A prolonged period of dry weather affecting most of the Black Sea region has been an additional supporting feature for grain markets with concerns that recently drilled crops may fail to establish and that farmers may cut their winter drilled areas in favour of lower yielding spring crops. However, recent rain for Ukraine has provided some relief and, although not sufficient to restore soil moisture levels to normal, the rains are helping establishment. A lack of rain had reportedly affected about a third of the winter area but most of the sprouted grain is now said to be in good condition.

In Russia, the wheat harvest is edging towards completion with 78 million tonnes cut, which is now subject to drying and cleaning. The net weight should be between 75 and 76 million tonnes, which exceeds the 72.5-million-tonne estimate from the United States Department of Agriculture (USDA). It's possible the USDA will update this estimate in next week's World Agricultural Supply and Demand Estimates (WASDE) report.

Russian winter grain drilling has reached 18 million hectares compared with 18.8 million hectares this time last year.

​OILSEED RAPE

• More contract highs

There has been little change in the market this week with new contract highs being reached. Current crop prices are settling at around £50/t higher than they were a month ago despite a firming sterling. Over this period, European futures values have gone up by over 8% while US soybean prices have remained broadly static. The gap between these two commodities continues to widen, with soybeans now at a massive £180/t discount to rapeseed in European markets. This puts the price of rape oil over soya oil at a huge £265/t premium. However, the remaining demand for rape oil, in particular, is remarkably difficult to shift.

• Canadian woes

There appears to be no relief in sight for the difficulties in the global rapeseed market. Canada is centre stage as its market tries to work out how to cope with its sharp drop in production. Unexpectedly, its market recently traded at a premium to European prices which is unusual given that Canada still needs to achieve some level of exports. Canada's domestic crush margins are low and the books will be balanced by a moderate reduction in home usage alongside substantial cuts in export volumes. Canada is also suffering from the effects of low oil contents in its 2021 crop. Early indications put the average oil content at 41.2%, which is 2.1% less than last year's levels, leading to the need for higher tonnage to produce the same amount of oil.

• Global oilseed stocks building

Elsewhere, the picture is of building oilseed stock levels. Oil World recently reported that this year's production of the seven major oilseeds would hit 599.7 million tonnes, which represents an increase in supply of 24.6 million tonnes. Production is likely to exceed consumption by six million tonnes, leading to a build-up in stocks. Normally this would be a red flag for long holders of rapeseed, but perhaps this year it's a welcome circumstance.

 PULSES

• Plateau in feed bean values

UK feed bean prices have certainly plateaued and in the south of the country prices slipped back last week due to lack of demand. In the Midlands and further north, there is still some demand but most of this will be for January onwards. Feed bean exporters are now mostly covered until the turn of the year and the UK will need to see further dips in the value of sterling to generate more buying interest from European buyers.

• Change in human consumption beans values rests on Australian supply

The value of human consumption beans has risen slightly as there is a need to cover existing sales. In addition, the recent strength of the US dollar has helped to stimulate more enquiries. Any further moves in human consumption prices will largely depend on how quickly new crop Australian beans can be moved through very congested ports and shipped either in bulk or containers to Egypt and the Middle East.

 FERTILISER

• Nitrogen

On the 16^th September, CF Industries announced the closure of both its UK fertiliser plants due to the high gas price. UK ammonium nitrate was trading at around £360/t at the beginning of September. Today, ammonium nitrate is trading around £600-700/t depending on the nitrogen percentage and origin of the product. This week, CF announced that the Ince plant in Cheshire will re-open and supply outstanding nitrogen sulphur orders. The Billingham Plant on Teeside has been operating since early October producing Nitram. Further to this, CF also returned to the market with limited volume offers on AN and NPKs.

Most other nitrogen markets have firmed again this week. Urea demand from India remained strong and Russia imposed an export quota on ammonium nitrate, liquid UAN and urea, putting further pressure on nitrogen supply this season.

• UAN

Limited UAN terms had been made available by several UK suppliers; however, following the announcement by the Russian Government regarding export quotas, all current UAN offers are now withdrawn until the impact of what this announcement means to the supply of UAN to the UK market is further understood.

There remains strong interest in spring UAN as growers report good levels of winter cereal plantings across the UK.

• PKs

The effect of the Russian quotas is not yet fully known but will have an impact on phosphate supplies as well as nitrogen. Phosphate and potash remain firm, even with low demand. Haulage issues continue to affect daily and monthly deliveries and these delivery limitations will continue well into the spring.

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