Category: Arable

Grain Market Update

Old Crop

Technical changes:  Towards the end of the grain marketing season, markets respond to the fundamentals of grain supply and demand differently.  Attention turns increasingly to the fundamentals affecting the new crop.  The increasing amount of information about new crop overtakes the dwindling old crop commentary.  Not Much old crop grain remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop being traded is rising all the time. This surpasses the declining volumes traded of old crop, especially this year with such small amounts of old crop wheat to start with.  This accelerates when the last old crop wheat futures market expires as is the case now as we enter May.  Market fluidity also declines when futures markets are not available.  The technicalities of closing contracts held becomes a physical issue either having to physically deliver them or close the position.

Fundamental changes:  Grazing animals have gone to pasture.  Unfortunately, grass is not forthcoming because of the dry and cold weather. Consequently, demand for feed barley has picked up from feed manufacturers in what would normally be the last embers of the old crop campaign.  Unsold old crop grains might experience a surge in the last month of the market before new crop harvest.  Other old crop users; millers, maltsters and other feed compounders are trying to get to the cheaper new crop with minimal carry-over.

The pulse market sometimes takes a small bounce as the last vestiges of the old crop market are mopped up and sent off on a boat.  This has happened with some local buying interest but the Egyptian market is dominated by the Australian crop now though so any business will represent the last breaths of an old crop trade.

New Crop

We are all aware of the need for emerging (spring) crops to receive rain in almost all of the UK.  In fact, there are dry conditions from the US Midwest, to the far side of Europe.  Agronomists think that the lack of moisture is starting to affect yield potential in many parts of the world and UK.  Winter crops have a remarkable ability to recover from dry weather conditions.  Drought initially affects markets more than crops, especially when it is international.  At the start of April, cereals prices were heading down, having peaked in January.  Since then, they have roared back up by nearly £20 per tonne, to contract highs, and a day or two more of dry conditions and they could go further.  Clearly, heavy rains could reverse much of these gains.

Dry spring conditions of course affect spring crops as well as winter.  Globally, two third of feed grains are are spring grown.  Thus, concerns from consumers are encouraging them to book what might be a scarce resource in the coming 12 months.  Speculators, not wanting to buy grains, but to cash in on the rising market values have also been wading in on the game, exaggerating the movements.

Barley price has risen more than wheat.  Not only is two thirds of the crop spring-grown in the UK, making it more vulnerable to drought, but the spring barley crop area has fallen back considerably to ‘normal’ levels.  The new crop feed barley discount to feed wheat has come back down to the conventional levels of sub £15 per tonne.

Soybean prices have reached their highest values for 8 years.  UK oilseed rape has gone up by another £20 per tonne.  Demand for soyabeans from China is higher than ever, despite the ill-found concerns from last year’s African Swine Fever.  The rapidly returning stock of breeding pigs is replacing the gap left from the porcine cull.  This required lots of beans to feed them with then oil cook them in.

New crop pulses have not really started trading.  The quality of beans being very unpredictable ahead of harvest, after which, market open.

Sugar Recovery

British Sugar is bullish about the prospects for this year’s sugar beet crop after the problems seen in 2020.  The company believes total sugar production is likely to be just over 1m tonnes – 10% higher than was seen in 2020.  The main reason is a reversion to more normal yields after those last year were hit by virus yellows disease, which caused a drop of 25% in crop output.  The cold weather in February has reduced aphid numbers which spread the disease.  As such, the emergency authorisation for the use of neonicotinoid seed treatments was never triggered.  British Sugar says the crop was established well this year in March.  Like many spring crops now, sugar beet will be in need of rain.  Crop plantings this spring are down 10% on the 2020 area of 103,000 Ha as growers responded to the problems of 2020 by reducing area.  The higher yields are expected to more than compensate for this and result in increased production.

Pick for Britain Scrapped

The Pick for Britain campaign has been ended by the Government.  Set up in April last year, in response to a shortage of migrant workers caused by the Covid outbreak, the hub aimed to match prospective UK workers with employers and recruiters (see April Bulletin).  Despite large amounts of publicity and high levels of interest, it is believed that the campaign resulted in relatively few workers actually placed in roles on-farm.  Rather than a dedicated portal, the plan is now to use more ‘mainstream’ channels such as the Jobcentres run by the Department for Work and Pensions to match employers with workers.  The 2021 season looks set to be another testing one for fruit and vegetable growers in terms of sourcing seasonal labour.  Although the Seasonal Agricultural Workers Scheme (SAWS) has been extended to 30,000 places this is some way short of the estimated 80,000 people required.   

Grain Market Thoughts

The world grain and oilseed markets remain dominated by a seemingly insatiable appetite by China to import ever-increasing tonnages of all grains and other commodities.  It has been importing most of the world’s traded soybeans for many years now but has only recently entered the market for colossal amounts of maize and wheat too.  This demonstrates that the Chinese agricultural policy of hundreds of years of being self-sufficient in grains is well and truly finished.  According to statistics published monthly by the USDA, the Chinese now hold not only two thirds of global maize stocks (9-months’ Chinese demand), but also 50% of global wheat stocks, 35% of soybeans 60% of rice stocks and 40% of the cotton.  Something is going on.  Some global food supply reports suggest China is about to experience a major food shortage and global food prices are therefore likely to rise any time soon.  Other reports suggest the stock levels are quite wrong and China is not hoarding quite so much.  The truth is likely to be that even the USDA does not really know for sure what China has (perhaps the Chinese cannot be so sure), and of course, being part of the US Government, the USDA could have another agenda, but it’s the best information we have.  China did build up similar stock levels at the turn of the Millennium, so it is not unprecedented.  It subsequently then ran down stocks, contributing to a bearish grain market for some years.

This time of year, crop reports from around the world are a major factor in the pricing of the new crop.  People might look first at the eye-catching old crop prices, but as most of that will be sold by now (or at least committed and priced), the new crop is of more significance.  November 2021 futures closed on the 25th March at £33 per tonne lower than May 2021, at £166 per tonne.  Russian analysts have recently reported good growing conditions for their wheat and increased their tonnage projection by 3 million tonnes (to 79 million) despite relatively poor crop ratings.  The Ukrainians too have done the same, reporting their wheat is in an excellent state and the positive reports travel through Europe too with Strategie Grains also posting good yield expectations for European wheat crops.  Despite the avid export of all grains to China, it is these positive prospects for production that has taken the edge off the grain prices in the last month.

New crop barley, whilst still having a larger discount to feed wheat than most years, has at least fallen to £15-£20 per tonne from feed wheat which compares favourably against the £30+ discount for old crop.  Not only is the production far lower than last year, but also we can hope that come June, people might start drinking more beer again so the malting industry might be rekindled.

The oat market took a boost this month with news that a new oat buyer is planning to set up in Peterborough.  Oatly, a Swedish company will make milk from oats to supply the growing market for animal-milk alternatives (see below). Farmers have found oats a very useful crop agronomically in recent years, but held back from growing it as few buyers have been in the market, so perhaps this will encourage a greater cropped area.

Oilseed rape for post-harvest looks as encouraging as this season’s prices have proven to be.  Perhaps some growers who opted away from the crop will be looking at these bid prices wishing they had tried growing it again.  Perhaps next season, the crop will experience a resurgence of area cropped.  The supply and demand table continues to look tight for new crop because, despite a likely rise in production from Canada, the largest producer, the other main regions (particularly Ukraine and Australia) look set to be lower.  Europe will remain in deficit too with large planted area reductions throughout the continent.

Demand for pulses has fallen away this month, as is often the case in March, as the Australian crop starts reaching the North African buyers.  The market will be thin from now on, and occasionally closed.

A Potato Market of Two Halves

The potato market is split in two. Growers with good quality potatoes find willing buyers and premiums. Those with lesser quality material find it difficult to sell and have to settle for low prices. The banning of the anti-sprouting chemical CIPC has made storage more of a challenge this season and those who can keep their stocks in good condition in store until late in the season should see higher prices.

Home consumption of pre-packed potatoes continues to be elevated by lockdowns, although not to the same extent as last spring, but demand for processed frozen products is still weak due to restaurant closures. Suppliers of potatoes to fish and chip shops are hoping that the easing of restrictions and better weather will boost demand and prices.

The cold and relatively wet spring has delayed planting, but the forecast for better conditions into April is bringing growers out onto their fields. The continued uncertainty over coronavirus and weak prices for much of this season are expected to result in a smaller potato area than last year – a 5% drop would result in one of the smallest areas ever.

The first post Brexit-transition trade figures show a big drop in ware and seed exports in January. Ware shipments were 80% lower than in January 2020 as the result of stockpiling by buyers, including in Ireland, in December and the new trading certification and customs requirements. UK seed exports to the EU and Northern Ireland continue to be banned, with little prospect of them resuming soon. Ware and frozen chip imports were also down because of the disruption.

Levy payers have voted by a wide margin for the AHDB potato levy to be discontinued. Two thirds of the 64% of levy payers who voted (1,196 in total) rejected the levy, with potato buyers (who pay £0.19 for every tonne they buy) objecting by a slightly wider margin than growers who pay £42.62 for every potato hectare grown. Defra, Welsh and Scottish ministers are now considering what action to take. They do not have to discontinue the potato levy, but are likely to insist on radical changes at the very least. In February horticultural growers voted against the continuation of their AHDB levy, although not by such a wide margin.

Oatly

The Swedish company Oatly, that produces alternatives to dairy products from oats, plans to open its first UK factory in 2023.  The facilities which will be based in Peterborough, Cambridgeshire will initially produce 300 million litres of oat drinks per year, increasing to a capacity of 450 million litres.  According to the company it will use oats from across the UK which will be a boost for the domestic crop, which has seen a resurgence in recent years.  How much of a boost in oat demand is difficult to calculate.  We have tried to find out how many litres of oat drink you can get from a tonne of oats; but with no success so far.  .

New date for Cereals 2021

Cereals 2021 will now be held on June 30th – July 1st this year.  Under the Government’s lockdown exit strategy, restrictions are due to end on 21st June, organisers have therefore decided to move the event from the original June 9th-10th in order to accommodate the maximum number of visitors and exhibitors.  The event will continue to be held at Boothby Graffoe, Lincolnshire with the format remaining the same as in previous years.

Beet Price Boost

British Sugar has announced a boost to sugar beet contract prices for the upcoming 2021 crop.  This is a response to the disappointing 2020 crop which delivered low yields as a result of virus yellows disease (see December Bulletin) and saw harvest hampered by wet weather.  It will aim to get growers to continue with the crop,

The ‘Beet Package Plus’ contains a number of elements;

  • the basic beet price under the one-year contract will be increased from the previously-announced £20.30 per tonne to £21.10 per (adjusted) tonne
  • the price under the three-year contract is increased from £21.18 to £22.00 per tonne
  • the surplus beet price for the 2021 crop (2021-22 campaign) has been set at £20.30 per tonne
  • there will be a guaranteed market-linked bonus paid at a minimum of 80p per adjusted tonne
  • the cost of beet seed can be deferred, interest free, until the beet harvest begins
  • more flexibility on deliveries in the next campaign
  • a £12m assurance fund (previously announced) to compensate growers faced with virus yellows disease

Arable Update

It is early days yet, but the world is gearing up for record areas of maize plantings in the US.  Indeed, the USDA published its predictions in February with exactly that.  It might be expected that this would cause prices to collapse but, of course, the global populations keep rising and so with more mouths to feed, consumption needs to be a record every year, just to keep up.  The market recognised this and quickly calculated the plantings estimated by the USDA might not be sufficient.  Indeed, maize stocks are thought likely to reach a 7-year low at the end of the season.  Prices rose.  This is all rather forward looking as the Midwest (where most US maize is planted) does not get its drills out for another month or two. Southern States like Alabama start in March but more northerly areas such as Illinois (where more is planted) is late April.

Yet, grain and oilseed prices are at 7-year highs, or even higher in the UK and other national markets.  Production is clearly only half of the story.  In fact, the country with most mouths to feed is not only buying ever-increasing amounts of soybean (having imported vast amounts in recent years and hitting a gigantic 100 million tonnes in 2020/21), but is also now buying maize and wheat.  China’s food policy for millennia was to be self sufficient in grains.  This has changed.  The chart demonstrates that when China decides to buy something, it does so in volume.  Its wheat imports have doubled to 10 million tonnes this year and maize imports tripled, adding another 16 million tonnes of new demand to the crop.  The world will certainly feel it.

According to USDA estimates, Chinese wheat stocks at 155 million tonnes are half the world’s wheat reserves, and 10 million tonnes more than China consumes in a year.  China will also carry over enough maize to keep it going for 8 months.  One has to wonder what it is up to, either something big or it will release it all onto the market again at some point, something the Chinese did at the turn of the millennium, an action that contributed to 5 years of low grain prices.

Unusual weather around the world is, ironically, usual at this time of year with plantings and crops emerging from winter in the more southerly countries.  It often affects markets more than it affects crops suggesting it has limited long term impacts.  In the UK, whilst snow melt and subsequent rains have topped up the soil moisture levels to ‘saturated’ in many regions, the warmer weather and winds have also been starting to prepare soils for spring cropping.  A lot still depends on the rainfall in coming weeks though.  Barley remains cheap compared with wheat, and whilst new crop wheat has been steadily rising in price (November futures at £170 per tonne), the discount from old to new crop is about £35 per tonne. There will be nothing carried over this year.

Oilseed prices have been strong, pushed about by currency shifts, and the Chinese business (above), plus poor weather in south America.   Demand in the EU is tight, partly as people throughout the EU have still been driving a lot in the more recent wave of lockdowns and therefore buying biodiesel.  There will not be much OSR in the EU by harvest time.

The pulse market is still busy but possibly falling a bit as the Australian harvest is now in full swing and some of which has already reached the Egyptian shores, depressing demand from the UK.

 

 

 

 

Levy Vote

Levy-payers in the horticultural sector have voted to end the statutory levy.  The ballot was held when more than 5% of the 1,400 horticultural businesses that pay the levy requested a vote.  The ‘turnout’ was 69%.  On a one-payer-one-vote basis, 61% voted to discontinue the levy.  However, analysis by UK Engage which carried-out the poll, found that, according to value of levy paid, there was a reverse picture with 57% Yes votes versus 43% No votes.  It is also reported that there was ‘different sentiment across different crop sectors and size of business – . . .  a very complex picture’.  The results have been forwarded to Ministers who have the final say on whether the levy will end.  A separate vote in the potato sector is underway and will close in mid-March.