Frontrunner – 22 February 2024
- A small recovery for wheat
So far, 2024 has been a bad year for wheat prices under the weight of world grain.
This is now heavier according to the International Grains Council who raised its latest world corn production estimate by four million tonnes to a total of 1.234 billion tonnes, now 71 million tonnes up on last year. World wheat production was left unchanged at 788 million tonnes.
London wheat futures have lost over 16% of their value since the end of last year and they struck a new contract low earlier this week. Subsequently, a spell of short covering for world markets delivered a £7/t gain and signalled a pause in declining prices. Growers who had set triggers in Frontier’s MyFarm online pricing system were notified of this and were able to take advantage of the short reversal in trend.
There seemed no obvious reason for the sharp price rally, but speculative managed money funds have near record short positions in world agricultural markets and decided to take some profits with prices now at their lowest for over two and a half years.
European markets were encouraged by EU weekly wheat export data which showed an impressive 1.249 million tonne jump on the previous release 10 days ago.
Shipments to 13th February are put at 19.896 million tonnes – now just 900,000 tonnes behind last year, although data is still thought to be incomplete. The actual wheat export pace could be ahead of where it was a year ago.
French vessel loading is brisk and with 20 weeks of the season to go, shifting the EU surplus looks less of a challenge than it has looked previously. On the bearish side of the coin, EU wheat imports hit 5.831 million tonnes with two thirds of that coming from Ukraine.
- Upbeat Black Sea exports
More upbeat forecasts for Russian 2024 crop potential and exports does little to help build any forward bullish confidence.
Analysts see Russian 2024 wheat production rising to 93 million tonnes. Russia says it will export 52.9 million tonnes this season – the country will need to be fiercely competitive to achieve this and it expects to ship another 48.1 million tonnes next season.
The Romanian Port of Constanta has seen a 38% fall in Ukrainian grain exports during January in comparison to last year, as Ukraine’s own Black Sea ports become more effective. Ukrainian grain exports between 1st and 15th February were well ahead of last year – 3.1 million tonnes up from 2.2 million tonnes. This highlights the return towards a more normal pre-war operational level of throughput at Black Sea ports.
- Poor French 2024 crop prospects offer little support
Heavy rain and delayed plantings leave the 2024 French wheat crop in its worst condition for four years. Crop ratings sit at just 68% rated “good/excellent” which is significantly below last year at 93% – this currently offers little market support as the weight of old crop supplies continues to be the dominant price driver.
UK old crop feed wheat prices remain too high to be export competitive. A price of £150/t delivered port might secure shipping trade but for farmers that have cash and space, a carry to the 2024 season looks a more attractive alternative.
London November ’24 premiums to the May ’24 trades are at approximately £18/t as the UK 2024 wheat crop potential worsens by the day. UK spring drilling is becoming a concern given the recent continuous rain across most of the British Isles, leaving saturated fields in a condition as bad as they have been all winter.
- Old crop prices decline further
Old crop feed prices have continued to slide another 2-3% this week. Ex-farm prices are now under £150/t in all parts of the country which has slowed farm supply. This period can typically be quiet even without the current price dynamics. The demand side has also been subdued as compounders are reluctant to seek cover while feed grain prices proceed lower.
Barley’s discount to wheat has reduced as futures markets have fallen more than physical barley; this could be another factor curtailing demand as compounders seek inputs that are cheaper relative to wheat.
With a sizable barley tonnage yet to be exported and an insufficient carry in the market for growers to roll tonnage to new crop, it will be interesting to see whether UK prices continue lower and find export demand, or if the carry increases to the point where rolling old crop tonnages becomes a more feasible option.
- New crop still uncertain
Spring barley planting continues to be delayed by rain this week, particularly in England, with over 20mm of rain falling across the country and up to 60mm in the Southwest and southern Wales.
If this level of precipitation persists into March, it’s possible that spring crops will be planted late, increasing the risk of drought during key growing stages.
New crop barley has a smaller discount to wheat than old crop, but that is shrinking due to there being more compound buyers than farm sellers of new crop. If barley remains cheap relative to wheat, then it will maintain its place in compounder rations into crop ’24.
- Rapeseed market flat this week
On the week rapeseed markets are relatively unchanged, as European markets are mostly quiet.
In the UK, some farm volumes have been trading after we sustain levels of around £350/t ex farm as the domestic seller starts increase their pace in comparison to their European counterparts.
EU rapeseed crushing reached a record of 12.7 million tonnes in the period of July to December 2023. Unfortunately for prices, there is little scope for this trend to continue in the second half of the season as crushing margins take a turn for the worse.
Other oilseeds markets have also been relatively dull and are trading around multi-year lows this week as no new market-moving data has been presented.
In the soybean market, it’s now very unlikely there will be a shortage of beans in 2024 with estimates of South American crop sizes more confident.
- NFU conference
This week pulses manager, Andy Bury, attended as a speaker at the 2024 National Farmers’ Union (NFU) conference where, in one of the breakout sessions, he discussed the challenges and marketing opportunities of growing UK protein crops.
During the session, Andy presented a paper highlighting a number of market insights. The biggest crop (faba beans) is already seeing a big growth in demand by UK compounders who are constantly looking at reducing the use of soya meal, especially in dairy and pork rations. Year on year that growth is over 25% and looks set to continue through the rest of the trading year, as well as for the following crop year.
Some interesting discussions and questions from the group followed Andy’s update – the panel and audience discussed the reasoning behind new crop bean contracts being based as a premium over wheat futures, when they would be more correctly valued against a basket of other mid-range proteins. Whilst this is factually correct, early sales made for export are generally bought by shippers who usually turn to MATIF wheat futures as a hedge.
There were also questions around yield variability and price volatility, where Andy explained that many growers are achieving above average yields due to close attention to detail and solid agronomy plans, as well as joining several growing schemes to help reduce price variability.
Listen to this week’s Frontrunner podcast to hear further insights directly from Andy.
Egyptian urea values are marginally lower this week, but with no impact to UK market prices which are still valued below true replacement costs.
The UK urea market has slowed due to some growers still looking to finalise cropping decisions. Urea importers are reluctant to commit to further volumes into the UK due to the slowing of demand from the farmgate, but also the arrival times of new vessels. These will likely be beyond the end of March which is when the urea stewardship scheme begins in England.
Whilst gas prices remain low both in the UK and across Europe, AN supplies remain tight for the spring. This is due to manufacturing plants curtailing production across Europe, and the UK has seen less imported AN arrive since September 2023 in comparison to the previous year. Some European plants are beginning to restart production, but it’s believed the tonnage will predominantly service Europe’s domestic markets once demand picks up.
UK AN (Nitram) is still available for April/May delivery.
Where circumstances allow and given current ground and weather conditions, applications of UAN are taking place across some regions in a moderate manner.
A full portfolio of grades is available for those with storage capacity within their tanks on farm; whether this be to fulfil an existing order or where additional volume is required off the back of revised cropping. This includes NPK grades for growers with a requirement on root or cereal crops this spring – delivery turnaround remains prompt for those with tank capacity.
UAN values remain unchanged in the UK marketplace and continue to offer good value for readily available nitrogen and nitrogen sulphur products.
P and K demand remains buoyant and the potash market remains stable with no changes to report in terms of pricing levels. The phosphate market is stable and prices remain firm.
The main supplier of DAP to the UK is reported to be sold out for March shipment, so it’s worth securing tonnage – requirements tend to be in smaller volumes, therefore delivery timescales can be extended.
It’s also worth noting that good quality NPK compounds are likely to see a gap in product availability.