Frontrunner – 26th November 2021

CEREALS

WHEAT

  • Australian weather adds to exporter challenges

European wheat futures rallied further this week, striking new record-high levels as bullish drivers continue to influence markets. Adverse wet weather across east and southeast Australia has proved damaging for wheat crops with reports of sprouted grains and quality wheat consigned to the feed bin. The world’s major milling wheat importers were hoping that the arrival of a predicted bumper crop in Australia would ease the tight supply of quality wheat and cap record prices but that may no longer be the case.

In New South Wales, where harvest was expected to achieve up to 11 million tonnes, reports suggest that between 50-75% of the crop could be damaged. Better-than-expected yields were reported in Western Australia but managing lower-than-usual proteins is a further complication for exporters to manage.

Markets showed evidence of consolidation ahead of Thursday’s Thanksgiving holiday in the US, followed by further long liquidation of European wheat futures on Friday morning, with renewed concerns over new Covid-19 strains and avian flu.

The 2021-22 season has brought a catalogue of quality and yield losses for a number of the world’s major wheat exporters: Canada, US, France, and Russia. Russia was expected to publish export quotas in January 2022 effective from the 15th February 2022. This week, an official said that the scope of new year export quotas will instead be released in December to ensure its domestic market has sufficient grain whilst maintaining the balance for exports.

  • More wheat for Argentina

In contrast to Australia – the primarily wheat exporter in the Southern Hemisphere – prospects for the Argentine wheat harvest remain positive. This week, the Buenos Aires Grain Exchange (BAGE) increased its official wheat production estimate for Argentina to 20.3 million tonnes as the harvest reached 33% complete and moved 15 points up on the week.

Average yields have increased to 2.4t/ha, although the crop condition for the standing crop fell six points to 53% rated ‘good/excellent’; this is still well ahead of last year, when only 26% of the crop achieved this rating. If realised, this would be a record crop for Argentina with the previous record being 19 million tonnes achieved in 2018/19.

  • Promising 2022 crop prospects

2022 harvest European wheat futures followed old crop markets to new record-high levels and production prospects at this stage are encouraging. MARS (Monitoring Agriculture and Rural Sustainability), the EU crop monitor, has reported this week that winter drilling has ended on time in northern and central Europe, is progressing well in the south and that weather has been favourable for early development.

This is certainly evidenced by the latest French weekly crop progress report. France AgriMer has reported that winter wheat drilling has advanced four points to 97% complete and that the crop condition remains stable at 99% rated ‘good /excellent’ for week ending 22nd November.

BARLEY

  • Old crop feed and malting firmer again

Feed barley values rose once again this week, following firmer global grain markets over the week. In the short-term, merchants are largely focused on execution with increased logistical pressure on the supply chain as we move into December. There is limited capacity for any new purchasing before the turn of the New Year, but opportunities for January onwards remain, with barley still competitive and holding its position in many feed rations.

Weather in Australia has been a key driver of firmer global wheat prices this week, but the wet conditions seen in the southeast also raise questions concerning the quality of the Australian barley crop. This has helped support UK malting barley premiums, which have firmed on the week. As with feed barley, malting barley opportunities are now generally available from January onwards.

  • Crop 2022 area estimates – larger areas of winter cropping than summer estimates predicted

The Agriculture and Horticulture Development Board (AHDB) Early Bird Survey’s forecast for crop 2022 showed an increase on winter plantings, largely due to the favourable field conditions seen in October and November. The winter barley area is now estimated at 415,000 hectares, which is up 2.8% from the June estimate. This comes alongside coinciding increases in wheat and oilseed rape areas. The area of spring barley is estimated to fall by 7.7% to 688,000 hectares.

OILSEED
  • Stable markets

This has been an unusual week for oilseeds markets with no major market reports, little change in the value of sterling and domestic prices showing no movement over the past seven days. Northern Hemisphere crops are known and any Covid-related demand impact has been taken into account. Southern Hemisphere weather is being monitored and it is too early for the annual battle for spring acres to be warming up in North America. The December World Agricultural Supply and Demand Estimates (WASDE) report will be released in a couple of weeks and China’s activity will continue to be a source of uncertainty. However, in general, markets are stable.

  • Record Australian crop on the way

The default position these days seems to be for rapeseed markets to go up. However, the lack of Chinese buying in the general oilseeds market, slow export sales on US soybeans and favourable South American weather – particularly in Brazil – have all combined to give markets a bit of a breather. Europe is also moving closer to the time when new crop Australian rapeseed will be arriving on its shores.

Oil World reported recently that the Australian harvest is progressing well and is on course to produce a record crop of near six million tonnes. However, this will not make up for the shortfall coming out of Canada where the total canola exports last quarter alone (July/Sept) dropped by 1.75 million tonnes and shipments to the EU over the same period plummeted by a staggering 92%.

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OTHER NEWS

 FERTILISER

  • Nitrogen

Domestic ammonium nitrate (AN) prices returned this week at £15/t over the previous week’s offer and now up by a total of £35/t since UK prices have been reissued. Levels offered for UK AN represent good value and product quality in comparison to imported alternatives, generally from unknown origins. Tonnage remains tight among all suppliers in the nitrogen market and the situation seems unlikely to improve as we move into 2022.

As the UK starts to see some cold weather, gas prices continue to be firm and are six times higher than the 40p/therm they were this time last year with spot markets today at £2.40/therm. This picture is reflected across Europe and has forced ammonia to a record high of $1100/t.

Urea prices have again increased in the UK as they move towards true replacement values. Physical supply is now running dry and no new shipments are due to arrive. Internationally, following the 1.6-million-tonne purchase from India last week, product supply is under pressure with some countries now not receiving any priced offers on tenders sent; this is a good indication that this market could move up to yet another record high.

  • UAN

General liquid terms have been withdrawn today, however some regional offers are still available depending on product requirement and customer location. Please discuss with your Frontier representative.

Suppliers continue to be nervous about offering large volumes forward due to continued global uncertainties around gas prices and UAN production costs. Therefore new general terms are not expected in the near future.

  • PKs

Phosphate markets are unchanged following the sharp rise last week. Whilst the Russian government is giving some clarity to the export quota of products, it is unlikely any DAP tonnage will come into the UK during this six-month period of control starting on the 1st Dec 2021. Replacement DAP prices are now over $1000/t with large buyers (India/Ethiopia) taking up any slack for January and February. TSP hasn’t moved up as much yet and on current values looks a good buy when comparing to DAP levels.

MOP levels look set to rise again as global demand continues and some supply issues are becoming apparent in related potash products. Covering your spring potassium requirements before the end of 2021 is advisable.

Haulage issues continue to intensify and look set to remain very challenging through to the spring usage period. Growers are advised to book their requirements now in order to ensure tonnage is received to farm in good time for spring application.