Category: Arable

Grain Markets

Grain prices have fallen as harvest has commenced in the UK.  Many in the East and South East of England are progressing well with winter barley and oilseed rape harvests; early results have been varied, reflecting the picture of crops throughout this season.  That said, overall, early yields are perhaps not as disappointing as feared.

Grain prices have declined due to plentiful global supplies.  In its July update to the World Agriculture Supply and Demand Estimates, the USDA increased global grain stock forecasts for the 2024/25 season by 6 million tonnes.  The increase was largely driven by an almost 5 million tonne increase in expectations of global wheat stocks.

Harvests also are well underway in much of the Northern Hemisphere, with harvest completion ahead of normal in the US.  In France, progress is slightly behind the five-year average pace, and results have reportedly been disappointing.  That said, with expectations for harvests already low, it takes further reductions in reported yields to increase prices.

In the UK, AHDB published its annual Planting and Variety Survey results.  The results show year-on-year declines in wheat area (-9%, UK) and oilseed rape (-21%, GB). The total barley area is estimated to have increased by 6%, owing to increases in spring barley plantings.  It is notable that the results show a smaller decline in wheat area than was forecast in the spring re-run of the Early Bird Survey.  The Early Bird forecast a wheat area decline of 15%.

AHDB suggest that less wheat was replaced by spring cropping than the Early Bird Survey indicated.  However, it is notable that the sample size of the Planting and Variety Survey is smaller than that of the re-run Early Bird Survey.  One thing the difference between the results does draw into question is the reliability of surveys, and how individual farmers record data.  Have farmers entered the area of the fields which were cropped which will be reflected by lower average yields?  Or, have farmers subtracted lost/ poor areas from planting figures, which would be reflected by better-than-expected yields?  Defra June survey area data will be published in late August.

Whilst UK ex-farm grain prices have fallen, on average, across the month, oilseed rape prices have increased.  It remains to be seen whether the better price will encourage more oilseed rape planting this autumn.  More details on cereal and oilseed prices can be seen in Key Farm Facts.

Sugar Price Warning

The NFU Sugar Board has warned that the contract price for the 2025 crop (2025-26 contract) is unlikely to be as high as the current £40 per tonne.  The NFU is presently negotiating prices with British Sugar, but with EU sugar prices falling significantly since the winter, the farm-gate price of beet will come under pressure.  Looking at the current 2024 crop, it has reportedly recovered well after a slow start caused by late plantings and the cold, wet spring.  With an estimated 102,500 hectares planted, the highest for some years, there could be a large domestic crop this year if the rest of the season is kind.

Grain Markets

Prices for feed grains have fallen considerably throughout June, pressured by improved global conditions.  The value of UK feed wheat futures (Nov-24), averaged over £217 per tonne in May, but just £205 per tonne in the month to 26th June.  The decline in UK futures prices is the result of falling global prices.  New crop (Dec-24) US wheat futures fell consistently during June, towards the contract low, set in March 2024.

The US wheat harvest is progressing well, and the increased liquidity of global grain has put downwards pressure on prices.  In addition, the harvest of Brazil’s second and largest (Safrinha) maize crop is adding to the volume of available grain.  The increased availability of grain has so far outweighed the fact that global grain stocks-to-use ratios are set to be tighter year-on-year; posting an eighth consecutive annual decline.

The months immediately before harvest are often some of the most volatile and reactive to weather and harvest progress stories.  For prices to rise, almost continual negative stories are needed.  There are some events that could offer support to grain prices.  If they materialise there may be opportunities to gain on short term market rallies.

There has been excess heat and rainfall across the US corn belt.  This has led to flooding in some key grain producing regions, most notably Minnesota.  However, assessments of the US maize crop remain largely positive, although these assessments do not fully capture recent negative weather.  One watch point for grain markets is the US acreage survey.  The survey will be published on Friday 29th June, giving the clearest indication yet of the scale of the US maize and soyabean crops.

Another area of concern had been Russian wheat crops, which were hit by unfavourable weather in April and May.  Whilst early information points to good yields, this is based on a small proportion of the harvest.  Russian analytical firm SovEcon point to the potential for yields to come down as harvest progresses.

As mentioned, the value of UK grain has followed the global market lower, for both old and new crop.  At the same time, the value of UK milling wheat over feed wheat has grown, averaging £68 per tonne, ex-farm in June.  The value of pulses have also increased, with little availability of old crop, and some time before new crop is available.  That said there is also little to no demand at present.  Domestic cereal, oilseed and pulse prices can be seen in Key Farm Facts.

Oilseed rape continues to look attractive for planting this autumn.  Dependent on available moisture, many will be anxious to drill early following the wet 2023-24 season.  Provided soil moisture is sufficient prices approaching £400 including bonuses will be attractive.  Of course, much will also depend on pest pressure.

Potato Update

The UK is likely to have another sub-five million tonne potato crop this year, according to projections from newsletter World Potato Markets. It expects the planted potato area to be similar to last year at 100,000 hectares. A five-year average yield would deliver a crop of 4.757 million tonnes, which would be 3.3% larger than the estimated 2023 crop which was the smallest on record.

Planting was again delayed by very wet weather and was only fully complete by the end of May, with many growers finishing up to a month later than they would normally. Conditions since crops went into the ground have been favourable to crop growth, although there is the threat of blight.

Planting conditions have been even worse in parts of Europe with Belgian growers only finishing in the last few days. World Potato Markets expects a similar EU crop to last year of 47.5 million tonnes, with the area planted barely changed.

Prices of potatoes have reached record levels, with the EU processing potato price in excess of €600 per tonne at the end of June, while UK packing potato prices have reached £750 per tonne, according to newsletter Potato Call.

The global potatoes industry has been gathering at the World Potato Congress in Adelaide, Australia this month. Despite the diversity of the industry, one of the major topics was climate change with extreme heatwaves and rainfall making production more difficult across the world. Delegates from India and Africa said that conditions are particularly challenging but the potential for potatoes to help feed a growing population remain enormous. There was a definite feeling that the dominance of the American and European potato industries in the potato trade has peaked because of the pressure on supply.

The NFU has launched a Save Our Spuds campaign following the difficulties of the past few potato seasons. It is calling for more government support to reduce the economic burden on potato growers. The Union’s action follows the bankruptcy of packer QV Realisations which was blamed by owners AH Worth on the volatility of the market and rising costs of production. The business failure threatens the jobs of 200 people.

Oat Milk

The international alternative-milk producer, Oatly, has abandoned plans to build a factory near Peterborough.  The facility, which was announced in 2021, was planned to produce up to 450m litres of oat milk per year.  The Swedish company says that demand will be met from existing factories in Europe.  The growth in dairy alternatives has slowed in recent years and this may be behind Oatly’s change of heart.  

Grain Market Update

Whilst UK yields will undoubtedly be lower for harvest 2024, over the course of the past month, the value of arable commodities has increased.  The rise is fueled by concerns about global new crop (2024 harvest) availability.

World market price rises are a result of the tight supply and demand situation for grains developing ahead of the 2024 harvests.  The United States Department of Agriculture (USDA) published its first estimates of 2024/25 supply and demand earlier in May.  Global grains supplies are expected to increase by 21Mt; however, this is offset by a 21Mt rise in consumption, and a fall in opening stocks.  It results in an overall forecast decline in grain stocks of 4Mt, year-on-year.

A large driver of the decline in grain stocks is the fall in forecast wheat stocks.  Declines are anticipated for six of the eight top wheat exporting nations.  The largest fall in is expected for the EU and Russia. That said, the latter is still expected to be the top wheat exporter globally.  Russian conditions are a key watch point for grain prices at present.  Russia’s key wheat growing regions have been dry with abnormally low temperatures also hitting the crop.

New crop (November 2024) UK feed wheat futures were worth more than £220 per tonne on 21st May, an increase of almost £18 per tonne on the previous month.  In the physical market, AHDB has reported November 2024 bread milling wheat prices approaching £300 per tonne delivered into the North West.  This is a strong signal of the concern surrounding domestic milling wheat availability.  Plantings are down considerably year-on-year, and opportunities to apply nutrition to crops has been limited.

The price of competitor feed grains will be a factor to keep an eye on in realtion to UK feed wheat pricing.  Barley prices have also risen over the past month but remain at an increasing discount to wheat owing to expectations of larger supplies.  Availability of feed barley could still increase, depending on the quality of the malting crop.  Maize import prices are also at an increased discount to wheat.

Looking further ahead, values for 2025 harvest are also relatively attractive, given an increase in the wheat area globally looks inevitable.  November 2025 UK feed wheat futures were worth almost £212 per tonne on 21st May.

Rapeseed prices are also higher than they have been in recent months.  Concern around availability in the EU has moved new crop rapeseed prices back above £400 per tonne, in some regions.  Gains in prices have been capped slightly by expectations of large global soyabean crops.

Fruit & Veg Blueprint

The Government has set out a ‘Blueprint for Growing the Fruit and Vegetable Sector’.  This was launched as part of the Prime Minister’s Farm-to-Fork Summit at Downing Street.  The aim is to increase the proportion of fruit and vegetables consumed in the UK that are produced domestically.

A key element of the plan is a replacement for the legacy EU Fruit & Vegetable Aid Scheme which used Producer Organisations (POs) to distribute grant support to the sector.  This will be replaced in 2026 by a new ‘Horticulture Resilience and Growth Offer’.  This will be open to all parts of the edible horticulture sector, ranging from large-scale field crops, such as potatoes, through to glasshouse production and vertical farms.  Whilst collaborative ventures will still be encouraged, the previous requirement for applicants to be in a PO will be dropped – individual growers will be able to apply.  Funding will be doubled from current levels to £80m.  Of this, £10m will be earmarked for orchard growers to access equipment, technology and infrastructure.

Other measures set out in the blueprint include;

  • address the issues that Controlled Environment Horticulture (CEH) (e.g. glasshouses) have with energy.  Specifically, this may classify CEH with other ‘energy-intensive’ sectors and make it eligble for targeted support
  • reform to the Planning regime to allow glasshouses to be built more quickly
  • a fund of £50m (seemingly on top of the £80m for the Horticulture Resilience and Growth Offer) to support packhouse automation
  • explore how long-term cold storage of products can be supported to allow UK produce to be sold year-round
  • ensure other support, such as the Sustainable Farming Incentive (SFI) and Farming Investment Fund (FIF) is suited to the horticulture sector
  • invest £15m in Genetic Improvement Networks (GIN) and establish a new GIN for soft fruit

See https://www.gov.uk/government/publications/a-blueprint-to-grow-the-uk-fruit-and-vegetable-sector for more details.

USDA Reports on UK Crop

The US Department of Agriculture (USDA) published its interpretation of the state of the UK growing crop in mid-April pointing out the UK is likely to harvest one of its smallest crops on record this summer. It expects the wheat area to be as low as 1.4 million hectares (1.7m in harvest 2023), and yielding 7.6 tonnes per hectare (3t/ac). With figures like this, it reported the UK will be importing approaching 3 million tonnes of wheat.

The Department expects barley the area to increase from 1.14m hectares last year  to 1.2m, because of more spring barley having to be planted. It is using 6 tonnes per ha as a yield estimate, giving a reasonable 7.25 mt barley crop.

The USDA also reported on oilseed rape, and quoted a crop area of 280,000 hectares and used 3.2t per hectare yield.  Acknowledging the last time the UK harvested less than 300,000 hectares of OSR, was in 1986.

Grain Markets

The price of grains has recently increased, driven by concerns about new crop prospects, with world supply and demand tightly balanced.  In mid-April, the price of new crop UK feed wheat futures (Nov-24) reached £200 per tonne for the first time since mid-January.  The increase in prices follows concern around crop conditions in key global markets.

Close attention is being paid to global weather patterns, with global grain stocks following the 2024 harvest expected to rise by just 1 million tonnes, year-on-year.  This is a significant decline in the International Grains Council forecast of stocks from the previous month (see table).  Managed money funds still hold a large sold position in grains and oilseeds, essentially betting on prices moving lower.  Recent weather concerns have led to some buying, increasing prices.  Further weather concerns would lead to more fund managers reducing their short positions.

The decline in output forecasts is driven by two key factors, concern over the production of South American grain in 2023/24 (reducing carry-in stocks), and reduced North American maize acreage.  Brazil has been suffering the lingering effects of El Niño, a weather pattern which brings warm, dry weather to South America.  This has resulted in significantly lower soil moisture reserves.  Much of the Brazilian maize crop will be planted in the coming months. With little chance of above-average rain in the coming months in central Brazil, crop prospects could yet worsen, supporting prices.

Dry weather is aiding progress with maize planting in the US, with progress ahead of the five-year average.  US farmers are expected to plant 5% less maize this year, in favour of soyabeans.  US weather will again be a key watch point for grain pricing this year.  Also in the US, the proportion of winter wheat crops rated ‘good’ or ‘excellent’ was estimated at 50% in the week ending 21st April; down 6 percentage points since the beginning of the month. The fall in conditions is due to dry weather.

Conditions have improved in Europe.  Warm dry weather throughout spring has aided planting progress in France and Germany.  However, winter crop conditions are still poorer than normal.  Concerns will be rising about the impact of warmer/dryer weather on winter crops.  The EU Commission crop monitoring report highlights the rapid acceleration of plant development in France and the increasing prevalence of disease pressure.

In the UK, crop conditions are down significantly on previous years.  To the end of March, just 34% of UK winter wheat was in ‘good’ or ‘excellent’ condition.  This is down from 90% as at March 2023.  A further update to crop conditions is due to be published by AHDB in May.  Winter crops are looking healthier than they were a month ago, where established, although not everywhere and challenges still remain for many especially in the North of England.  Furthermore, rainfall has continued to hamper spring planting efforts in the wettest regions, although progress has been made elsewhere.

 

Loam Farm

The 2024 harvest year continues to be challenging for cereals farmers.  Whilst dryer weather has allowed some spring operations to progress, the wet weather since the autumn has already affected the likely financial returns for the coming harvest.

In light of these difficulties we have updated our Loam Farm Model.  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.

The farm has just finished its sales from harvest 2023.  It can be seen that the returns have been far lower than the previous 2021 and 2022 harvests.  However, those two were unusually good (some of the best profits Loam Farm has seen in 30+ years).  The results for harvest 2023 are far more in line with historical averages.  However, even with the farm making a profit, the business is under some cashflow pressure due to higher working capital requirements and the need to pay tax on the profits from the two previous good years.

For harvest 2024, variable costs have reduced – mainly lower fertiliser values.  Overheads increase due to labour, machinery, fuel and general overhead cost inflation.  Some costs have increased to deliver the SFI options that the farm has signed-up for.   The key issue for the coming harvest is output though.  Despite the reduced UK harvest crop prices are un-exciting for growers – largely due to plentiful grain stocks  around the world.  Yields are also forecast to be lower.  Loam Farm is assumed to have established its winter crops, but the forecast yield has been reduced due to crop stress over winter and the significant bare patches in fields.  The farm has around a third spring cropping.  Again, these crops are assumed to have been established but the expected yield has been cut due to the late planting and unfavourable soil conditions.  It can be seen that, for Loam Farm, this means there is a forecast loss from production for this harvest.  The (declining) BPS and SFI are required to bring the business back into profit.