Category: Arable

UK Arable Markets

UK winter arable crops are looking in good order, according to a recent AHDB Crop Condition Survey, conducted at the end of March.  That said, March was drier than normal, a trend which has continued through April.  The long-range weather forecast suggests dry weather will continue for most areas of the UK.  This may start to impact potential yield if it carries on for a few more weeks.

UK arable markets have followed the global trend.  Nearby ex-farm feed wheat prices gave moved up to £308.20 per tonne in the week ending 22nd April 2022. Prices had fallen coming into April but have gone on to set new highs.

The price of ex-farm feed barley has narrowed the discount to wheat throughout April.  In the week ending 22nd April, nearby feed barley was quoted at £303 per tonne.  Wheat and barley prices have now risen by more than £83 and £94 per tonne respectively since Russia’s invasion of Ukraine.

The rise in prices has helped to offset some of the rise in input costs, with fuel and fertiliser experiencing sizeable uplifts.  There are indications that the price of ammonium nitrate has now fallen back from recent highs.  But high input costs will still represent a significant challenge for the 2023 crop.  New crop UK feed wheat futures have been trading at around £250 per tonne since the middle of April.  This may offer a useful hedge against high input prices for the coming season.

Most arable farmers will have already ordered their spring fertiliser – often some months ago.  There have been reports of availability issues for orders made this spring.  However, there is currently no shortage of fertiliser in the UK.  In fact, the main UK manufacturer is having trouble selling what is producing (perhaps not surprising given current prices) and is exporting considerable tonnages.  The issue with delivery and long order times are mainly for those ordering part loads and are largely due to logistics.  Those with a less-than-stellar credit history may also struggle.  Manufacturers and merchants are having to deal with their own cashflow pressures and do not want any bad or late debts.   

Rapeseed prices have also risen, with Ukraine a key producer of sunflowers and rapeseed.  Ex-farm oilseed rape prices are quoted at more than £845 per tonne; a 40% increase since 25th February.

One crop that has not seen the same degree of price rise is beans, which were quoted at £302 per tonne, ex-farm. This is the first time beans have been quoted at a discount to barley since December 2006, demand for feed beans by UK consumers is reportedly lacking.

Global Grain Markets

Arable markets have continued to react to the ongoing conflict in Ukraine.  May-22 UK feed wheat futures have moved up further, now trading around £320 per tonne.  In the short-term, prices for commodities and inputs will be driven by uncertainty in Ukraine.  The re-escalation of conflict in the east of the country, where much of Ukraine’s wheat and barley crop is grown, will continue to drive prices.

While the war in Ukraine has been the key driver of grain markets over the past three months, there are also other factors driving prices.

Severe drought in parts of the US wheat belt, has seen US wheat crop conditions rated poorly.  In the most recent USDA report (18th April 2022) 37% of the US winter wheat crop was rated as being in ‘poor’ or ‘very poor’ condition, the highest proportion for this time of year since 2018.  Difficult crop conditions at this time of year do not guarantee low production, in 2018 yields in the US, whilst down, were ahead of the five-year average even after crops were rated poor earlier in the season.  However, the crop needs rainfall, which looks lacking at present.

On top of the concerns for the US wheat crop, the US maize crop is also getting smaller.  Reports suggest farmers in the US are opting for soyabeans over maize, driven by lower costs of production.  The combination of a smaller US winter wheat crop and smaller than expected maize crop will support new crop grain prices.

The latest International Grains Council (IGC) supply and demand estimates, support the view of tight markets.  World grain closing stocks are forecast to fall by 26.5 million tonnes from 2021/22 to 2022/23.  Major exporters’ closing stocks of grain drop by 14.2 million tonnes.

It is worth adding that owing to the situation in Ukraine, all forecasts should be treated with caution.

GM Barley Trials

Field trails of a genetically modified barley have been approved by Defra.  The study will use gene-editing techniques to investigate the role of existing barley plant genes that interact with soil microbes.  The aim is to make the plants more efficient users of soil nutrients and reduce the need for artificial fertilsiers.  The trials will take place over the next five years at three sites of the Crop Science Centre; a partnership between the National Institute of Agricultural Botany (NIAB) and the University of Cambridge.

Loam Farm Update

Last month we reported on how difficult it is to budget at the moment due to the sudden and large rises in costs and prices.  But it is important that budgets are revisited.  We presented the updated figures for Friesian Farm last month and this time we look at Loam Farm.

The table below shows the results for harvest years 2020 and 2021, a provisional figure for 2022 and a forecast for 2023.  For harvest 2022, fertiliser was purchased last summer, i.e. before the recent price hikes.  The farm therefore shows spectacular profits for the year as a result of the high sale prices likely and (relatively) low costs.  For harvest 2023, the significant increase in variable costs can clearly be seen, together with overheads – partly driven by fuel but also labour, machinery and general overhead costs.  This results in the margin from production becoming negative.  The fall in BPS is starting to ‘bite’ but is mitigated by involvement in the Sustainable Farming Incentive (SFI).

Loam Farm is a notional 600 hectare business that has been used since 1991 to track the fortunes of British combinable cropping farms.  It is partly owned and partly rented and is based on real-life data. It has one full-time worker and employs harvest casual labour.

Arable Markets

A week is a long time in politics, and given their intertwined nature at present, so too in grain markets.  As the war in Ukraine enters into its second month, the impact on grain and oilseed markets has been considerable.  This is not surprising when we consider the reliance the world has on both Ukraine and Russia for grain and oilseed supplies.

The Food and Agriculture Organisation (FAO) of the United Nations held an extraordinary general meeting earlier in March, to discuss the challenge of the war in Ukraine.  The report from the meeting highlights 26 countries which rely on Russia and the Ukraine for more than 50% of their wheat imports.  Some of those nations will be relatively small importers.  However, it is worth noting Egypt, which imports more than 15 million tonnes of wheat annually.  Historically, 70% of Egypt’s wheat imports have been sourced from the Black Sea.  Whilst we can expect markets to be volatile long after the end of the war, much will depend on how the nations who rely so heavily on Russia align themselves politically going forward.

Farmgate grain prices have risen considerably over the course of the last month.  Nearby farmgate feed wheat was worth £292.90 per tonne on 18th March, up £69.40 per tonne from 25th February.  The value of farmgate prices has been driven by futures market volatility.  This is, in turn, making markets challenging to price.  Milling wheat prices have also seen increases, although the premiums over feed wheat have remained relatively stable.  Feed barley values have also increased considerably, following the direction of wheat markets.  Farmgate feed barley increased £67.90 per tonne from 25th February, up to £277.80 per tonne on 18th March.

Outside of the conflict in Ukraine, the grain market would likely be seeing support anyway.  Dry conditions over winter in the EU and US, will cause some concern on wheat markets.  Drought conditions are also seen in North Africa, if this persists, we can expect increased import demand globally.

Oilseeds prices have also risen considerably in recent weeks. Paris rapeseed futures (May-22) traded at more than €1,000 per tonne on 23rd March.  As with grains, there is a global reliance on the Black Sea for rapeseed and sunflower oil.  Ex-farm UK oilseed rape prices were quoted at £742.50 per tonne on 18th March.

Pulse prices have also gained over the last month.  However, the gain in the value of pulses has been limited compared to that in grains and oilseeds.

Sugar Beet Contracts

British Sugar has announced all contracts, irrespective of length, will receive at least £27 per tonne for the 2022/23 crop year.  On making the announcement. the processor acknowledged growers were currently exposed to significant cost inflation and that sugar prices were also rising.  It said it had worked closely with NFU Sugar to understand growers’ likely costs for the coming year, which had made it come to the conclusion that a guaranteed price was required to ensure sugar beet remained an economically viable crop for everyone.  The guaranteed £27 per tonne will apply to all contracts for the crop which is about to be planted.  Any growers with a fixed contract price below this amount will have it raised to £27 per tonne.  Those whose contracts include a market bonus element will received a guaranteed market bonus of £5.82, raising their price to £27 per tonne on delivery.  Any surplus beet for the 2022/23 crop will also be paid at £27 per tonne.

Neonics for Beet

Defra has announced that the ’emergency’ authorisation of Syngenta’s Cruiser SB seed treatment for sugar beet has been granted for this year.  Used to control Yellow Virus, our article of 25th January (see https://abcbooks.co.uk/neonic-beet-treatment/) detailed that the use of the neonicotinoid would be dependent on nine conditions being met.  This included an initial threshold for use, meaning the seed treatment can only be used if the predicted Yellow Virus incidence is at or above 19% of the national crop on 1st March.  According to Defra, following what has been a relatively mild winter, modelling on 1st March is predicting a 68% (!) level of virus incidence.  In 2018, 25% of the national sugar beet crop was lost to YV, with an estimated cost to processors and growers of £67 million.

Grain Market Roundup

As the conflict in Ukraine continues, the value of commodities has risen considerably. On Monday 7th March UK feed wheat futures (May-22) closed at £303 per tonne, a rise of almost £68 from 23rd February, the day before the invasion began. While prices have risen, daily movements have been volatile. Russia and Ukraine account for more than 28% of world wheat exports, as such developments in the conflict will have large ramifications for prices.

Despite the large rises in output prices as a result of the conflict, input prices are equally inflated. Russia is a key producer of fertiliser and exporter of fuels. The price of fuel is likely to stay inflated, with the UK and US governments announcing, on 8th March, their intention to ban Russian oil imports. The UK ban will be phased, Russian supplies of fossil fuels account for 8% of UK imports.

 

Outside of global politics, the International Grains Council (IGC) lowered its estimate of global grain stocks for the 2021/22 (current) season.  This was due to cuts in Southern Hemisphere maize production forecasts where dry weather is impacting on crop expectations.  This is also likely to be a continued driver of grain price rises.

Despite the factors globally which point to further grain price rises, we also need to consider the new crop (2022/23) when looking at the direction of grain prices.  The IGC has tentatively forecast an increase in grain stocks; as we move nearer to the new crop market the expected availability of the 2022/23 crop will have an increasing influence over prices. On 9th March the USDA is set to update its world supply and demand estimates, these will be watched closely.

In the UK, milling wheat premiums remain high relative to recent seasons.  Milling wheat premiums will be watched closely as we move towards spring in light of the high cost of nitrogen.  Feed barley prices have followed the same path as wheat prices, tracking lower through February before recovering.

Ex-farm oilseed rape prices have fallen back from their December high of £627 per tonne.  Rapeseed prices have responded to the incredibly tight UK, European and Global oilseed rape supply and demand.  However, prospects for the new crop are for improved supplies.  This will lead to lower prices than we have seen this year.  Of course, there is some time before the rapeseed harvest and the fundamentals still have time to change.  Soyabeans also need watching for the direction of rapeseed.  The dry weather in South America has supported soyabean prices and tightened the supply and demand outlook. The United Nations Food and Agriculture Organisation cut its estimates of South American soyabean production by 13.5 million tonnes (3.7%), earlier in March. A tightening of global vegetable oil and oilseed markets will lead to price rises.

Pulse prices remain flat through January and February, moving by just £1 per tonne across the last month.

Grain Market Roundup

Over the last month, the prices of UK wheat and barley have fallen.  This has been driven by an improved global supply and demand picture for wheat and a stronger Sterling.

Global Market Drivers

The USDA published its latest supply and demand figures early in January.  The report showed improved global stocks of wheat, including amongst the top exporters.  The picture for maize tightened globally, with forecasts of Brazilian production falling by three million tonnes, to 115 million tonnes.  However, the combined production of maize in Brazil and Argentina was only 0.76 million tonnes below trade estimates.

South American production of maize is still something to watch closely for price direction.  Rainfall has improved crop prospects lately, but Brazil and Argentina are forecast to experience drier conditions over the next few months which could hamper production, tightening global markets.

In the short-term global politics also need watching closely.  Tensions between Russia and Ukraine, and in Kazakhstan, have increased global wheat futures in January.  The three countries account for about a third of global wheat exports.  Any escalation or de-escalation of tension will impact prices.

As we move forward, grain prices are increasingly going to be driven by the prospects for next season.  The International Grains Council is forecasting that global wheat production will increase in 2022/23.  Stocks are forecast to stay relatively unchanged.

Domestic Markets

UK spot ex-farm feed wheat prices fell from £219.10 per tonne on 17th December 2021, to £213.60 per tonne on 14th January 2022.  As well as the global factors outlined above, the fall in prices was amplified by a 1.7% increase in Sterling against the Euro, over the same period.  Milling wheat premiums remain historically strong but have fallen back recently.

UK ex-farm barley prices also moved lower across the month.  The barley market is closely tracking wheat this season, with supply and demand in both markets tight.  Feed barley was quoted at £203.40 per tonne on 14th January, down £5 per tonne from 17th December.

Oats have moved against other grains over the past month.  The high price of other grains has increased the inclusion of oats in compound feed rations (to November) according to AHDB figures.  As a result, oats have closed the gap slightly to other grains, but remain at a significant discount to barley.

Spot ex-farm feed bean prices have been flat through January, at £246 per tonne.  However, reports suggest that Australia has sent large shipments to Egypt which led to price falls on increased competition.

Rapeseed prices surged again into the New Year.  Demand for rapeseed oil in the EU remained strong despite high prices.  Ex-farm rapeseed prices (spot) are now quoted at £613.20 per tonne. There is a significant discount into new crop, owing to better new crop prospects.

Gene Editing

Defra has recently announced it will be putting in place new legislation which will ‘cut the unnecessary red tape’ to allow Gene Editing (GE).  The legislation, laid on 20th January, will apply to GE plants only.  It should mean plant-based research and development using GE will be able to take place more easily.  GE is seen as a powerful tool to tackle food security, climate change and biodiversity loss through breeding plants that are resistant to diseases and climate change such as, sugar beet resistant to Yellow Viruses and climate-resilient wheat.

It is unclear just what the new rule changes will be, probably a relaxation in the licence and application process, but it seems to fall short of changes to the definition of Genetically Modified Organisms (GMOs) which was included in Defra’s response to a consultation last year (see Bulletin article https://abcbooks.co.uk/gene-editing-allowed/).  The recent announcement says ‘for now, GE plants will still be classified as GMOs and commercial cultivation of these plants and any foods derived from them will still need to be authorised in accordance with existing rules’.

GE currently falls under the definition of GMOs.  But GE is used to create new varieties, similar to those which would have been produced more slowly through conventional breeding processes, by manipulating the coding to speed up the development of desirable traits, in contrast to GMO, where genes have been transferred between species (transgenic).  It had been expected that the definition would be changed so that GE plants (and animals) would be taken out of the definition, but this does not appear to be the case ‘for now’.