Category: Arable

Ukrainian Grain Shipments

On 22nd July, Russia and Ukraine reached an agreement to allow shipments of grain to leave Black Sea ports.  Reports suggest that up to 20 million tonnes of old-crop grain, needs to be exported from Ukraine.  Understandably, the news of the grain deal caused markets to fall significantly, owing to expectations of increased grain availability.  UK feed wheat futures (November 2022) dropped by £16.75 per tonne on the day.

Prices have since recovered, despite the first vessels having left Ukraine.  One vessel has successfully passed inspection in Turkey, en-route to Lebanon.  The continued movement of vessels out of Ukraine ought to lead to a fall in prices.  However, there are some key considerations which may limit any drop. These include;

  • Volume of grain – the primary factor, which could prevent a sustained fall in prices is the volume of grain which needs to be moved.  The grain deal only runs for 120 days, yet if reports are to be believed there is circa 20 million tonnes of old crop grain alone needing to be moved.  That is around 170,000 tonnes of grain per day.  There are a number of vessels waiting to leave Odessa, a key grain port, which will move with comparative ease, but this will not be the case for all of the grain.
  • Logistics – logistical challenges are likely to restrict the volume of grain that can be shipped. Contrary to some reports, the volume of grain needing to be exported is not held at ports, or in a single province.  It needs to be moved from within Ukraine to ports before it can be shipped.
  • Insurance and crew – one of the primary concerns surrounding the ability to ship grain was the insurance premium on vessels although, given grain is now moving, this would not appear to be to prohibitive.  Crewing the vessels may be another challenge, each vessel needs 20+ crew.
  • Russia – the big caveat to all shipments at the moment is Russia’s intentions.  The day after the deal was signed, it shelled the port of Odessa.  This was followed a few days later by the killing of a prominent Ukrainian grain exporter in Mykolaiv.  Similar incidents over the next 120 days will have as much impact on grain prices as the movement of vessels out of the Black Sea.

Shipments of grain out of Ukraine will ease prices, however, there still remains a lot of grain to be moved.  The risk of Russia reneging on the shipment deal will also remain a concern.  This will fundamentally limit the fall in prices.  Furthermore, it is worth highlighting that there is still underlying support for grain prices with supply and demand of global grain tighter year-on-year.  There is also continued uncertainty over the condition of the EU maize crop, due to heat stress, keeping prices supported.

UK Grain Market Update

The UK grain and oilseed harvest is well ahead of typical pace. Much the UK barley crop and swathes of the Oilseed Rape crop have been cut. Many farmers are now well into their wheat crops some 7 to 10 days ahead of normal. Early indications point to high bushel weights among winter grain crops.

UK grain markets have tracked global prices in recent weeks. Both new and old crop wheat prices have fallen in response to the availability of grain in Europe and the US. UK feed wheat prices (ex-farm) were quoted at just over £242 per tonne on 22nd July. Milling premiums have also fallen back to around £25 per tonne, ex-farm. However, if high specific weights persist throughout harvest, diluting the proportion of protein, we are likely to see an increased premium for good protein levels.

Feed barley prices have been pressured downwards by harvest progress, quoted at a £31 per tonne discount to wheat, at £211 per tonne.

Oilseed rape prices have also fallen considerably over the course of the last month. Oilseed rape (spot) is now worth £534 per tonne, down from £596 per tonne at the end of June. This is in part  due to the move from old crop to new crop pricing. Similar declines have been seen in November 2022 Paris Rapeseed futures. This points to an overall easing in response to improved supply and weaker demand of oilseeds globally. An increase in oilseed rape plantings is anticipated for harvest 2023. However, a lack of soil moisture may cap these gains.

Feed beans and peas were quoted at £282 and £272 per tonne, respectively (spot, ex-farm). Prices are back to tracking wheat prices closely after wheat had opened up a large premium earlier in 2023.

Harvest pressure is inevitable at this time of year. A greater surplus of UK grain, either for export or closing stocks, is expected in the coming season. This will drive a closer relationship between UK and EU grain prices. While there is short term pressure in prices, long-term the global supply and demand of grains remains tight.

Global Grain Markets Update

Global grain market prices have fallen over the last month. Global grain harvests are progressing, and Russia and Ukraine have reached an agreement, mediated by Turkey, on the movement of grain. Both of these factors have eased concerns about tight supplies in the coming season. Despite the easing of supply concerns, and prices, in the short term, some underlying concerns remain.

The big news towards the end of July, was the agreement between Russia and Ukraine of new export channels. Again, this has eased some short-term concerns. Grain prices moved sharply lower on Friday 22nd July as a result. However, agreeing that grain can be exported from Ukraine is very different to the reality of actually exporting it. On Saturday 23rd July shelling resumed at the port of Odesa, the key grain terminal covered by the agreement. Even if a solution is found and ports are de-mined, insurance premiums on vessels will surely be much higher than previously, which would impact competitiveness of the region.

In Europe and North America, grain harvests are progressing well, benefitted by dry weather. The winter wheat harvest in the US is 70% complete, in line with average progress. Additionally, the condition of the spring wheat crop is vastly better than last season. The US has exported large volumes so far, supporting the view of larger crops.

In France, the wheat harvest is 84% complete, as of 18th July. This time last season it was only 12% complete. Again, progress has been good following hot dry conditions. As with the US harvest this fast pace to harvest has eased short-term global supply concerns.

Whilst hot weather in the EU has allowed harvests to progress, it is concerning for the development of the maize crop. The amount of the maize crop rated “good” or “excellent” fell by eight percentage point in the week to 18th July, to 75%, while this is still positive if high temperatures continue, conditions could fall further offering some support.

The United States Department of Agriculture released its global supply and demand estimates earlier in July. These estimates highlight concerns about overall availability of grain this season. The stocks-to-use ratio of wheat, barley, and maize is the lowest since 2013/14. While not dramatically tighter than last season, it is worth bearing in mind that China holds 58% of the world’s grain stocks, at least on paper. If we exclude China from the stocks-to-use calculation, availability for the coming season is the lowest since 1996/97.

Beet Price

Sugar beet growers are set to receive a significant price increase for next season.  NFU Sugar and British Sugar have announced a beet price of £40 per tonne for 2023/24 crop; a 48% increase on the current price.  Also included in the offer is a number of options for growers to opt-in to mitigate risk and provide yield protection;

  • An option to purchase a yield guarantee product that protects income against yield losses
  • A ‘futures-linked’ variable price contract for the 2023/24 crop which enables growers to make more dynamic pricing decisions for up to 20% of their contracts
  • A local premium – growers within 20 miles of any British Sugar factory will receive a local premium of up to £2 per tonne, based on distance to the factory
  • Revised multi-year prices – all growers with an existing 2023 commitment will automatically receive an upgrade to £32 per tonne, from £25 per tonne.  Growers can upgrade this further to £40 per tonne if they commit to grow sugar beet in 2024.

With input costs soaring and other crop prices experiencing significant price rises, it was important that beet producers received this timely offer to ensure beet remains part of grower’s rotations.  The sugar beet area has declined over the last two seasons and British Sugar is hoping this new offer will halt this.

Global Grain Markets

Global grain markets have continued to fall from recent highs as the northern hemisphere grain harvest kicks-off.  The prospect of grain coming onto the market is reducing the build-up of pressure caused by the ongoing war in Ukraine.
On 17th June 2022 the USDA released its latest forecasts of agricultural supply and demand.  Consumption of wheat, barley, and maize combined is forecast to outstrip production in the coming season.  This suggests that while harvest progress is moving prices down at the moment, underlying support remains.  Where prices settle after harvest will depend on many factors, most of all actual yields.
 
Winter crop prospects in the US and parts of Europe have been challenged so far this season.  In the US, the harvest of winter wheat has been quicker than normal so far.  To the 19th June 2022, 25% of the crop is harvested.  Crop conditions in US have dipped again for wheat, but the outlook for spring crops is positive.  This is driving the mixed movement in prices.
 
In the EU, persistent dryness throughout May and June has resulted in yield estimates for wheat and winter barley falling below the five-year average.  The impact is not limited to one region of the EU with dryness affecting many of the key grain producers.
 
Russia is expected to harvest a bigger than average wheat crop this year.  The impact of this crop on global prices will depend on the level of the crop available to be exported.  At present exports are also forecast to increase compared to average, but much will depend on how easy it is for Russia to export the crop in light of present tensions.  Russia has increased its export taxes to preserve wheat for domestic consumption.

UK Arable Market Update

With harvest creeping ever closer, attention remains on the weather in the UK.  Generally, crops are looking healthy, benefitting from rainfall in the latter half of June.  Concerns had been growing around the heat in the middle of the month and AHDB’s Crop Condition Survey highlighted crops moving backwards to 24th May, relative to the end of April.

UK prices have recently fallen, tracking the decline in global markets.  Trade in old crop is now largely over and attention from buyers will be focused on new crop.  Demand for new crop, in particular barley, is likely to be lower next season driven by a decline in the size of the UK pig herd.

UK feed wheat values have fallen, November-22 futures closed at £282 per tonne on 23rd June, down almost £36 per tonne from the end of May.  November-23 futures have fallen by £20 per tonne to just over £248 per tonne.

Barley prices have also dropped, feed barley for harvest movement is trading at a £32 per tonne discount to wheat.  Malting premiums have reportedly firmed slightly although the feed base has fallen.  The winter barley harvest in the UK is now imminent.

Oilseed rape prices have responded to weakness in global vegetable and mineral oil prices.  Concerns over the global economic picture has been coupled with expectations of large soyabean crops in South and North America.  UK ex-farm oilseed rape prices have fallen £775 per tonne at the end of May to £596 per tonne, as at 24th June.  Field bean values have generally fallen with other output prices, albeit at a slower rate. As of 24th June, beans were quoted at £306 per tonne (spot, ex-farm).

Potato Update

Potato planting conditions were largely good this year but drought fears increased in April and early May.  They were alleviated by rain in late May and into June and, by late June, crops were looking in good condition.  However, growers were already expressing concern that dry weather could impact the crop again through July and August.

The disbanding of AHDB Potatoes means there are no area estimates for the second year running, but newsletter World Potato Markets is estimating a 5% drop in the GB area to less than 110,000 hectares, which would be the smallest area on record.  If the five-year average yield of 44.7 tonnes per hectare is achieved then the British crop will be almost 4.9 million tonnes; about 200,000 tonnes less than the 2021 crop and the smallest since 2012.  A repeat of the very wet season of 2012 would mean a record small crop of 4.01 million tonnes, whilst a repeat of the 2018 drought would deliver a 4.52 million tonne harvest.  If 2017’s bumper yield is replicated then 5.35 million tonnes could be produced.

The prospect of an historically small crop has not galvanised the market in the same way as it has done in the past.  Prices remain lacklustre with significant stocks of old crop weighing on the market.  Newsletter Potato Call is quoting prices of no more than £160 per tonne for packing Maris Pipers.  Many growers are not enthused by the contracts they have received for the 2022 harvest and fear that free-buy sales will not cover elevated fertiliser, fuel, energy and other costs.  If growers do lose large amounts of money from the 2022 crop, then it is likely that the 2023 area could be even smaller.

Potatoes are proving very good value for shoppers as they cope with the spiralling cost of living.  An Office for National Statistics survey found that potato prices in discounters fell by 14% in the year to April, one of only seven other products out of a basket of 30 to see a price drop.  Another faller were frozen chips, while pasta jumped by a third.

The UK remains one of the largest consumers of potatoes in Europe by volume and per capita, requiring the equivalent of 6.5 million tonnes a year.  Further area reductions will make the UK market even more dependent on imports, especially of processed products.

Latest export figures show that the UK exported 15,740 tonnes of potato seed in the first quarter of the year.  That was 42% more than last year when the EU’s ban on UK potato seed imports was imposed following full Brexit.  Despite the increase in quarterly sales, seed exports from July 2021 to March 2022 were 13% lower than last season.

Whilst there is gloom in the British potato industry, the recent World Potato Congress in Dublin heard of the potential for the crop globally, with the head of UN Food & Agriculture Organisation Dr Qu Dongyu urging African and Asian farmers to plant more potatoes in their rotations to improve output and ensure food security.

Beet Advance

Sugar beet growers will be offered a 25% advance payment on their 2022 crop.  It is an acknowledgement of the cashflow pressures farmers are under.  Growers will have to opt-in for the advance payment, which will be made in the third week of June.  Based on the 2022 contract price of £27, it will be worth £6.75 per tonne.  The tonnage will simply be based on the growers Contract Tonnage Entitlement (CTE).  The advance will only be available to farmers who have held contract tonnage for the past three years, although British Sugar states that other growers should discuss their situation with account managers.

UK Grain Market Update

UK grain markets have, unsurprisingly, followed the global direction in prices over the last month.  Wheat prices are higher, month-on-month, although wheat futures are lower than recent highs. Ex-farm feed wheat (spot) was quoted on 20th May at £326 per tonne, with a milling premium of £27 per tonne.

AHDB crop condition figures showed crops to be in good health through to the end of April.  Some 83% of winter wheat and 84% of winter barley rated as ‘good’ or ‘excellent’.  There has been rainfall across much of the UK in May.  However, rainfall in England was still behind the long-term average for the month, up to the week ending 17th May.

New crop UK feed wheat futures are also considerably higher than a month ago.  On 23rd May November-22 futures closed at £332.50 per tonne, up almost £45 per tonne on the month. Challenging conditions for crops in the US and EU are combining with ongoing uncertainty in the Black Sea region.

Prices for the 2023 crop have also risen.  November-23 feed wheat futures closed on 23rd May at just over £271 per tonne, up almost £20 per tonne on the month, but down from a high of £295 per tonne on 16th May.  The direction of the 2023 crop is uncertain at present, especially with limited futures trade.

Ex-farm feed barley prices also increased during the month, but only marginally.  The feed barley discount to feed wheat was quoted at almost £22 per tonne on 20 May, driven by a lack of interest from both buyers and sellers.

The price of oilseed rape has fallen in recent weeks, but nearby prices were still in excess of £819 per tonne, ex farm. Recent market reports highlight further falls in delivered prices for both harvest 2022 and 2023, with the latter now quoted at £580 per tonne delivered into Liverpool. This reflects Indonesia lifting its palm oil export ban.

Pulse prices had lagged behind the rises seen in other commodities.  However, feed bean values increased by £26 per tonne across the month, to £328 per tonne.  Premiums for new crop beans are squeezed.

Global Grain Markets

Global grain and oilseed prices remain high.  Whilst a key driver is the war in Ukraine, there are also a number of other factors at play; there are concerns for crops in the US, EU, and India which are supporting new crop values.

EU Crop Conditions

Conditions in continental Europe have mirrored conditions in the UK.  Many countries, including France, Germany, and Romania have experienced a lack of rain.  For France and Germany, two key grain and rapeseed producers this situation does not look like changing before the end of May.

French agency FranceAgriMer has downgraded its view of winter cereal crop conditions.  The EU crop monitoring report from the EU Joint Research Centre, published on 23rd May, further highlights the challenge of dry conditions but is still optimistic on yield impact.  If conditions remain dry, a yield impact is to be expected, this will support the global grain price.

India

India has grown in importance to global grain markets in recent years.  The third largest wheat producer in the world, after the EU and China, is forecast to export 8.2 million tonnes of wheat in 2021/22, rising to 8.5 million tonnes in 2022/23.  However, dry conditions over the past couple of months has sharply reduced forecasts of output for the 2022 harvest.  This has prompted the Indian government to ban exports of the grain. However, immediate concerns were softened, with sales to countries with irrevocable letter of credit to be honoured.

USA Crop Conditions

While US winter wheat crop conditions are unchanged on the month, they continue to be a concern.  Drought conditions are observed in some of the key wheat producing states and also in parts of the High Plains (important for spring wheat).  Maize plantings are also lagging behind the five-year average, as are spring wheat plantings.  This is most notable in North Dakota, which produces more than 50% of the US spring wheat crop (6.9 million tonnes, 2017-2021 average).  Crop conditions in the US will be watched closely over the coming weeksa and will be a key driver of grain prices.

USDA Supply and Demand Estimates

The USDA published its latest Supply and Demand estimates on 12th May.  The report included the organisation’s first forecasts of the 2022/23 crop.  Both the maize and wheat supply and demand balance are expected to tighten.

The stocks-to-use ratio for wheat is forecast to be the tightest since 2014/15 at 34.1%.  However, China is also expected to accumulate more stocks in 2022/23.  Excluding China from the analysis tightens global wheat stocks to the tightest point since 2007/08.

For maize, global stocks-to-use is seen falling slightly year-on-year.  Conversely, global maize stocks-to-use, excluding China, is set to rise.  This may add some downward pressure to maize prices, widening the gap to wheat.  If the gap is favourable for consumers, this may also undermine wheat prices slightly.