By Frontier Trading Desk on Friday, 06 November 2020
Category: Market information

Frontrunner - 6th November 2020

Earlier this week, wheat markets eased lower following concerns that the increasing impact of Covid-19 will lead to cuts in global demand for grains, particularly from the fuel sector. Wheat price gains made in the second half of October were all but lost. However, on Thursday, the US Chicago Board of Trade (CBOT) soybean market jumped to $11 per bushel, a four-year high, which pulled world wheat prices higher with it.

You can also listen to the Frontrunner podcast - press play to hear the latest report. The report this week is read by farm trader, Nigel Dring.

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Frontrunner is also available as a podcast, so you can hear the latest from our traders while you're on the go. Listen below or subscribe to the report on Acast, Spotify, Apple Podcasts and Google Podcasts.  The report this week is read by farm trader, Nigel Dring.

WHEAT

Earlier this week, wheat markets eased lower following concerns that the increasing impact of Covid-19 will lead to cuts in global demand for grains, particularly from the fuel sector. Wheat price gains made in the second half of October were all but lost. However, on Thursday, the US Chicago Board of Trade (CBOT) soybean market jumped to $11 per bushel, a four-year high, which pulled world wheat prices higher with it.

Dry weather in both Argentina and Brazil has delayed soybean and corn planting. Argentinian farmers have managed to plant only 31% of their corn so far compared to 43% this time last year. It is thought that late planting could result in later harvesting and push more export demand to China to the US, where shipments of agricultural products are already at record levels. Market support also came from expectations for a bullish World Agricultural Supply and Demand Estimates (WASDE) report from the United States Department of Agriculture (USDA) next Tuesday, including cuts for US and world grains production and stocks.

Despite higher prices, the world's leading importers are obliged to continue to buy wheat to maintain sufficient strategic supplies. Egypt bought 300,000 tonnes of Russian wheat on Thursday for December and January delivery at an average of $275.80/t including freight; this was $2.50/t below its previous tender on 23rd October.

Saudi Arabia is looking to buy 600,000 tonnes of wheat this week, with Germany and the Baltics favourites to secure the business. The EU needs to improve its export pace. So far this season, it has shipped 6.89 million tonnes compared to 9.73 million tonnes this time last year. 75% of French non-EU shipments were to China. With four months of the season gone, the EU will need to ship 18 million tonnes of wheat from now to the end of June 2021 to reach its target of 25 million tonnes, meaning the current weekly export pace will need to increase by 30%.

With the Australian wheat harvest gathering pace, farmers are reporting "massive" yields. In New South Wales, record yields are being seen on the back of widespread rain following three consecutive drought years. Production in New South Wales is expected to reach 13.2 million tonnes, which would be its highest ever.

Analyst IKON Commodities has increased its production estimate for Australia to 32 million tonnes. This is notably higher than the official crop estimate last made by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), which forecasted the country's wheat production for 2020/21 to be 28.91 million tonnes. This was up from its June estimate of 26.67 million tonnes.

Australian farmers are keen to cash in at current prices, which are allowing Australian wheat to compete aggressively into the South-East Asia market. Offers made at $275/t including freight undercut Black Sea supplies by $10/t, leaving Australia set to capture that market. However, the trade dispute between Australia and China continues, with reports that Chinese importers have been advised not to buy Australian products and commodities, including barley. It is thought this effective ban will extend to Australian wheat.

BARLEY

Activity has been rather muted this week on feed barley trading. Domestic compounders are rather quiet, awaiting more enquiries from the livestock sector. Undoubtedly, barley is going to be maximised in any further pellet sales. However, with a fresh lockdown now in place, the demand for the various types of cuts and meat and their route of sale is quite unclear; a situation which delays decisions generally. In terms of export, pre-Christmas merchant long-holders are finding it slow-going selling their positions. However, as long as sterling doesn't firm too much, they should find a sale eventually.

By the end of August last year, the UK had exported 330,000 tonnes for the 2019 crop year. This year, it was 105,000 tonnes. This drop is, in part, due to big yields in 2019 and an early harvest, compared to low yields and a much bigger percentage of later cut spring barley for 2020. Shipments picked up in September and also gathered more momentum in October. November should also achieve 'good' export volumes.

However, a figure of 800,000 to 900,000 tonnes needs to be hit by Christmas to make a strong dent in the total export requirement of 1.8 to 1.9 million tonnes. Being able to trade with the EU in 2021 would be a great help going forward; otherwise, we are in the hands of the world market with all its complexities of differing specifications, currency movements and political influences.

Australia has started what appears to be a ten-million-tonne harvest , up significantly on last year's drought-affected crop, without the ability to sell to its main customer, China. This is due to a Chinese ban on imports. This means Australia will target sales to Saudi Arabia, which is, on average, the world's largest importer of barley and the target for Black Sea and EU sellers. This creates extra competition within the Saudi market.

France has also seemingly run into some difficulties due to prohibited seeds being found in ships discharging in China that have loaded in France. It's likely there will be few exports to China from the EU going forward. This flow had previously held up prices in the EU nicely and it will be interesting to see if the volume of early trade has been enough to keep overall EU supply and demand tight for the season.

All in all, barley is not expensive as a commodity in general, but it probably needs to be in order to get various volumes away from around the world before the arrival of crop 2021.

​OILSEED RAPE

UK rapeseed markets have regained most of what they lost last week. Worries over the short-term loss of demand due to Covid-19 have been replaced by longer-term concerns over Europe's heavy reliance on imports from Canada and Australia coupled with the knowledge that global stocks of all oilseeds remain tight.

US soybean futures found new contract highs this week, with annual export volumes to China up 400% from last year as the Chinese strive to feed a pig herd that is 50% larger than it was this time last year. Traders' attentions are now focused on next week's WASDE report from the USDA, which will update markets on US soybean yields, projected export volumes and predicted year-end stocks. The global soybean stocks-to-use is currently sitting at a 23-year low and, with forward prices having to be at levels sufficient to buy an estimated extra eight million acres next spring, it is difficult to see where any weakness can come from in the short-term.

Markets are expected to remain choppy. The funds, otherwise known as speculators, remain massively long in all oilseeds markets and this will amplify market moves as sentiment shifts around. With uncertainty over the outcome of both the US election and Brexit negotiations, some volatility in exchange rates should be expected. Furthermore, the spread of Covid-19 has proved to be an unpredictable factor on the demand side of the market.

 PULSES

This week, pulse markets have seen little movement in either direction. With a few market shorts and general uptick in other feed materials, the feed bean price has remained stable, with growers still able to make over £200/t ex-farm. As mentioned last week, there is only a certain inclusion rate feed beans can factor in at, which will cap domestic values. Compared to other feed products, beans do look to be good value, if they can be included in a ration. This has made UK and EU feed peas unattractive to feed compounders as they have surged in price due to poor European crops.

Human consumption parcels are still able to make premiums. However, these are relatively small compared to previous years. It looks wise to take advantage of the premium while it is available, as trade for human consumption beans is currently extremely thin.

Any growers with pea parcels on farm that have not yet been sampled should consider sending in a sample to get a bid. Currently, opportunities exist for a wide range of specifications. However, these markets can quickly disappear, so it wise to discuss your options at your earliest opportunity.

 SEED

Drills have sprung to life this week as drier weather has allowed planting of autumn-sown cereals to continue across much of England. For many, a November drilling date will have been later than planned and seed rates will need to be increased to account for a likely reduction in tillers. We would advise anyone with further requirements for autumn seed to focus on varieties that are suited to delayed drilling, which are normally those with a more vigorous growth habit.

The use of growth-promoting seed treatments, such as Vibrance Duo, should also be considered. These can improve crop emergence and rooting in cooler soils, helping to compensate for the later sowing date.

Frontier has seed stocks available for swift delivery, including varieties ideally suited to November drilling such as SY Insitor, KWS Siskin, KWS Kinetic, and Belepi.

Looking ahead to the spring, it is important to note that difficult harvests of seed crops in some areas have resulted in significant variation in germination results. This is expected to have a knock-on effect for spring cereal seed availability, with some varieties likely to be in short supply and subject to sudden changes in availability. With that in mind, we would recommend that orders for spring barley, wheat, and oats be placed as soon as possible in order to secure supply of preferred varieties.

Seed intended for home-saving should also be tested for germination at the earliest opportunity to confirm seed quality and identify whether there are any requirements for replacement with certified seed.

Stocks of spring seed will be available for early drilling during the winter months for those that prefer to establish crops during November, December, and January.

 FERTILISER

Dry weather this week has increased activity around crop nutrition, as more land is being drilled with winter crops. This week has seen increased demand for Spring NPK grades as well as nitrogen and nitrogen sulphur grades. There have also been a couple of upward price moves as November and December production space has become full on NPKs and nitrogen sulphur grades from CF Fertilisers. This means the next delivery period for these products is now January 2021. If spring were to come early next year, this could create some logistical challenges, especially with Covid-19 and Brexit thrown into the mix.

The granular urea market is understood to be around 30-40% covered in the UK. The recent publication from the Department for Environment, Food and Rural Affairs (DEFRA) regarding the use of urea is also a worry for those shipping urea to the UK. A total ban on urea is one of the potential considerations, for which the consultation period is due to come to a close at the end of January 2021.

There has again been increased demand this week for TSP and MOP. Blenders will be looking at the calendar and starting to think about spring demand, so watch out for price moves. TSP and MOP prices are at long-term lows, with likely increases on the way. With the uncertainty of Brexit, growers are advised to buy pre-Christmas at these current lows and not wait until spring.


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