Frontrunner - 13th August 2021

LISTEN TO FRONTRUNNER

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 marketing assistant, Faye Lee.  

WHEAT

• Bullish USDA report sends prices higher again

The United States Department of Agriculture (USDA) published its August World Agricultural Supply and Demands Estimates (WASDE) report on Thursday and presented some bullish surprises. Futures markets reacted with notable gains and US, Paris and London wheat futures all rallied to set new contract highs.

Having taken an overly conservative view of potential crop losses in its July estimates, this time the USDA made some aggressive production cuts. This was particularly the case for Russia where the USDA estimates the wheat crop will be as low as 72.5 million tonnes. This compares with its July estimate of 85 million tonnes. Earlier this week, the Institute for Agricultural Market Studies (IKAR) lowered its production estimate to 77 million tonnes, reflecting poorer than expected yields.

Notable production losses are also seen as a result of the drought that has ravaged Canada; the USDA sees Canadian production falling to 24 million tonnes, compared to its previous July estimate of 31.5 million tonnes. In contrast, both Ukraine and Australia are seen producing larger crops than estimated in July at 33 million tonnes (up 3 million tonnes) and 30 million tonnes (up 1.5 million tonnes) respectively.

Overall, world wheat production is seen 15.5 million tonnes down on the July estimate to 776.91 million tonnes; this is still one million tonnes above last season. The estimate for consumption is seen four million tonnes lower at 786.67 million tonnes. With the world using 10 million tonnes more wheat than it is producing, stocks will be almost 10 million tonnes down on the year at 279 million tonnes. This is 12.6 million tonnes below the July estimate and reinforcing the bullish backdrop.

• Lower US corn yields

The USDA made cuts to its US corn yield estimates, which were double those expected by traders. Yields are now seen at 174.6bu/a compared to 179.5bu/a previously and the impact is a total US 2021-22 crop that is 10.5 million tonnes lower than what was estimated in July at 374.68 million tonnes. There is a significant contrast in yield potential for states across the US, which adds to the complexity of estimating final crop numbers. The second-largest corn producer, Illinois, is expected to achieve record yields, whilst North Dakota is ravaged by drought and will probably have its worst crop in 10 years.

Overall, world production is seen almost nine million tonnes down in July at a current 1.186 billion tonnes. However, this is still 71 million tonnes up on last season. Consumption will be 41 million tonnes up on last year but production exceeding demand, we will see stocks rise four million tonnes on the year; this will be 6.5 million tonnes below the July estimates. However, these crop estimates are far from being realised. The USDA finally cut its Brazilian 2020-21 crop estimate to 87 million tonnes to match those from other analysts. The 2021-22 crop is pencilled in the balance sheet at a huge 118 million tonnes but achieving this figure depends on beneficial weather.

• Mixed fortunes for Black Sea wheat producers

Latest Russian data shows its wheat harvest is reaching almost 60% complete but average yields so far are down to 3.34t/ha. This is 10% below those recorded this time last year and no doubt influenced IKAR's decision to cut its wheat production estimate. Ukraine's wheat harvest reached 73% complete with record yields reported and volumes 14% higher on the year at 4.55t/ha. This supports the USDA August estimate of 33 million tonnes.

Latest official data puts the French wheat harvest at just six points ahead of last week at 72%. Crop ratings remain unchanged at 74% 'good/excellent', but these do not reflect the current rain damage being recorded. It is estimated that as much as 50% of French wheat production could be downgraded to feed quality. This shortfall of quality has been a primary driver for the Paris wheat futures market, which has seen a 25% gain in value since early July. 

BARLEY

• Feed barley prices follow wheat futures higher

Prices have gained significantly following sharp rises in wheat futures markets in the Northern Hemisphere. Most of these gains are due to concerns around world wheat supplies. Barley's discount to wheat has widened to £21/t because local domestic consumption is due to drop by up to 20% in contrast to last year's very high inclusion rates. Yields and quality in terms of kg/hl get better the further west and north the harvest goes. Scotland appears to have achieved the best crop with high winter barley yields and a 65-66 kg/hl average specific weight.

• Cut your spring barley as quality, yield and malting premiums are good

If the weather continues to hold, the spring barley crops will be of good quality. Meanwhile, malting premiums have risen due to quality concerns in the western EU. Yet, despite quality concerns in other European origins. Denmark's harvest has reached around 25% completion and while yields are below last year's record, they are only slightly below average and the quality is good. Denmark can cut 15% of the remaining crop per day in good conditions, meaning significant progress can be expected before some rains Sunday evening through to Monday.

• Where do prices go?

The natural question to ask is how much of the bad news regarding wheat crops in Russia, USA and Canada has been priced into the market. With the rally in prices, the answer is probably quite a lot. However, many consumers have not bought a significant amount of their cover, delaying due to uncertainties surrounding future possible Covid-19 restrictions. Today's values are higher than budgeted and not at a bad price for the next percent of your sales.

​OILSEED RAPE

• Markets hit new contract highs

Paris rapeseed futures have hit new contract highs this week as the European harvest moves towards a conclusion and attention turns to what is happening in Canada. Europe's crushers are currently relying on domestic supplies but the import requirement in 2021/22 is going to be substantial with Australia and Canada seen as two of the key suppliers. Currently, plantings and weather conditions in Australia are both positive, leading traders to be pencilling in an extra one million tonnes of supply from Australian origin. However, the Canadian situation is getting beyond the point where rains would now rescue their crop even if they arrived and the Canadian exportable surplus is certain to be sharply reduced as a result. Even so, price rises in the UK market in recent weeks have been hampered by a firming sterling which has appreciated against the euro by over 2% since the 20^th of July.

• Chinese demand muted

Rising prices in global oilseeds markets in the last 18 months have generally been linked to relentless Chinese buying, although China has not been seen in markets recently. Chinese imports of soybeans in June and July from the big three exporters, USA, Brazil and Argentina, were 29% down from last year compared to a 9% reduction from other importers. Covid-19 lockdowns and floods affecting pig production are thought to be the key factors for this change. However, with markets riding high, it does beg the question: where could prices go if China suddenly resumes its formerly aggressive buying programme?

• USDA report impacts markets

Traders this week have been anxiously awaiting the August release of the USDA WASDE report. Market sentiment in recent months is that the USDA has been slow to address several issues in the numbers. In particular, its Canadian canola crop estimates have tended to lag behind trade forecasts based on the clear damage wreaked by the devastating heat and low rainfall in the Prairies. Early trading after the report's release saw prices surge in global soybean markets as the forecasted US bean crop was cut by 1.5% from the July report. This might seem modest, but with year-end stocks at rock bottom, we have nervous markets that are liable to be volatile following any changes on the supply side. The report also cut Canadian canola crop by 4.2 million tonnes to just 16 million tonnes.

 PULSES

• Bean values still following the wheat market

With bean values still following the wheat market, growers with buy back contracts may be well advised to lock into the current high values. This would enable growers to achieve base price feed bean levels of over £220/t ex farm for November, with the potential of an additional premium for human consumption grades. We have seen a few samples of new crop beans from crops in Essex and Kent. These early-harvested crops have yielded 4-4.25 t/ha, which is surprisingly good considering they have been cut so early. Quality was disappointing however, with a lot of small beans and quite high bruchid infestation levels. Currently there are no premiums for human consumption, as many more samples need to be assessed before market levels can be established. 

 FERTILISER

• Nitrogen/urea

Gas prices continue to drive global nitrogen markets. The UK gas price was 9p/therm in May 2020 and rose to 66p/therm in May 2021; today it sits at £1.15/therm. Gas supply, storage and availability, being prevalent issues in the summer months, are a real concern moving into autumn and winter. Gas prices drive ammonia prices, which translates to high nitrogen prices. UK values have again risen by £10/t this week, trying to keep up with Europe; however, these values are still below European levels.

India has announced a further purchase tender and is likely to return to the market next week for more granular and prilled urea. The market is a little weaker, but freight rates have risen, leaving little difference in urea values between India and the UK. Granular urea prices remain firm with plenty of demand, even at these high levels.

• PKs

Demand is slow whilst harvesting continues, nonetheless prices are firm on all MOP/TSP and DAP products. Blenders have again moved prices upwards this week due to increased replacement costs. The last few weeks have seen some demand increase which has reduced UK stocks, especially for MOP.

Get in touch

Please speak to your local Frontier contact or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for more information or advice related to any of the topics and services mentioned in this report.