As growers in England start to lift potatoes into store, the AHDB has updated the 2019 planted GB potato area. The revised figure puts the area at 118,950 hectares, 1% higher than last year, although this still remains one of the lowest on record. According to the AHDB the majority of the increase has been seen from smaller growers increasing their area and is likely to be due to last year’s higher prices. A fuller analysis of the potato market will be included in next month’s Bulletin.
The British Society of Plant Breeders (BSPB) has published it royalty rates for Farm-Saved Seed for 2019/20. This covers autumn 2019 and spring 2020 plantings. The rates can be found at http://www.bspb.co.uk/farmsavedseed/combinable-crops-payment-rates-and-eligible-varieties.php
Oilseed rape production in the EU has not been so low since the EU the EU expanded to 27 Member States. The introduction of Croatia in 2013 had minimal impact on the OSR supply and demand tables, but Bulgaria and particularly Romania, which joined in 2007, account for about as much production as the UK does. The crop this year is thought (for example by Coceral) to be about 12% to 13% lower than last year, and as much as 29% lower than the highest production year of 2014. In fact, since then, four out of the five years have incurred declines in OSR crop size.
This means that this year, the EU (including the UK in this description) will be importing oilseed rape from elsewhere. Some have suggested 6 million tonnes of will be required. At the same time, regulations on importing biodiesel produced from palm oil is becoming more expensive with duties rising. Additionally, the rise of crude oil prices following the attacks on Saudi refineries have also led to rises in vegetable oil markets. These factors have come together to support oilseed rape prices in recent weeks on European markets.
In the meantime, Sterling has gaining strength by 5% against the Euro in the light of rising expectations of a Brexit deal since early August. This has wiped out any gains in the UK OSR markets. This (relatively modest) currency shift demonstrates just how dominant the value of the Pound is on agricultural prices. We have no influence on the value of Sterling and minimal ability to predict accurately.
Taking this logic a little further, it follows that as soon as a decision on the type of Brexit is reached, whether Deal, No Deal or even no-Brexit, the impact on the value of our currency will almost inevitably be instant and dramatic; probably far more than 5% in either direction, depending on outcome. In the short term, the profitability of cereal farming post Brexit-decision will be led by currency shifts. Any other factors might be dwarfed by this one thing.
Exporters have been working round the clock to export as much wheat and barley from the UK’s exportable surplus since harvest. Their deadline is 31st October as they do not know what the tariff rates will be after then. Conveniently, there has been considerable buying interest from many of the large cereal buyers, mainly in North Africa including Algeria, Tunisia and Egypt. These countries don’t buy from the UK, but they have occupied other exporters’ minds whilst UK traders have focused on our traditional Iberian markets. This has helped UK grain prices to hold up, in the face of stronger Pound (see above). Yet the EU wheat crop is considerably higher than last year and the US cereals prices (especially maize) have been falling this month. The urgency of exporters to get stocks off farms and onto boats has supported prices.
Bean prices are also holding up well. The urgency to export the (considerable) surplus is smaller, both as much of the bean export goes outside the EU anyway, and also as the tariff rate to the EU is far smaller. In any case, the trade has struggled this year to find much that is of food grade, most ending up in feed bins.
The beet price for the 2020 crop will be £19.60 per tonne. This compares to the current price of £19.07. Similar to the 2019 crop price, this has no crown tare deduction and is paid on the current sugar content payment scale; this is equivalent to a price of £20.99 per tonne on a crowned basis. NFU Sugar and British Sugar have also announced the three year contract offer for 2020-2022. This has been set at £20.45 per tonne, again with no crown tare deduction. This is equivalent to a price paid on a crowned basis of £21.90 per tonne in year one and £21.18 per tonne in years two and three.
There will be a bonus mechanism for growers under both contracts; this triggers if the EU-reference price for white sugar reaches a certain price. For the one-year contract the ‘threshold’ remains at €375 (reduced from €475 in 2019), growers will receive a 15% share of the price above that level. The threshold for the three year contract will be €400. If the EU-reference reaches this level, growers under the three year contract will receive a 25% share of the price above the threshold. Other points which have been agreed include:
Growers will have received a letter outlining the above information. Contract offer documents will be posted out to during the end of September and the beginning of October.
Germany looks set to ban the use of Glyphosate by the end of 2023 when the EU’s current approval for the chemical’s use expires. Reports suggest it will start phasing out the world’s most widely-used herbicide from 2020, initially with a ban on domestic use and in parklands. The decision comes after Austria announced a total ban in July; the first EU Member State to end the use of the chemical completely. Germany’s decision to phase-out the use of the weedkiller is due to claims it is a contributing factor to a decline in pollinating insect numbers and concerns it can cause cancer in humans. The German-owned company Bayer who acquired Monsanto, the creator of Glyphosate, argue the chemical can be used safely and that it is ‘an important tool for ensuring the sustainability and production of agriculture’.
Until the last week of August, harvest was a headache for many farmers. Many areas had four inches of rain in June, another four in July and about 2.5 in August, meaning the ground was soft. Intermittent showers meant progress was slow. However, the last few days have been all-systems go, facilitating a catch-up. The warm, dry, weather has also meant producers have been far less dependent on the drier than at the start of the harvest.
With a majority of cereals now cut, yields have been good to excellent overall. Winter barley has yielded higher than average with plenty of our clients reporting 8 to 8.5 tonnes per hectare (3.25-3.5t per acre). Wheat has also been very good. Strong loam soils that have been cared for with ample organic matter over the years and heavy land have achieved in excess of 11 tonnes per hectare (4½ t per acre) – and not just in isolated cases. Bushel weights of 80+ have been commonplace too, but Hagberg readings have not been as good following the intermittent rain-shine weather. Lighter soils and those with less organic matter have been affected by the dry weather in May and early June. However, yields are still good so plenty of light land farmers are recording above average results. Oats are still in the field and losing colour so possibly less attractive for milling.
OSR has been variable because a fair area had larvae feeding on plants in spring which led to poor podding in crops. That led to yields being moderate at best, many reporting around the 3-3.3 tonnes per Ha (1.2-1.3t per acre).
Beans have been at high risk of bleaching following the showery weather of the previous few weeks. Beans discolour and therefore lose value easily and quickly. Those that have managed to harvest beetle-free and coloured beans could expect a £25 to £30 premium over feed beans but the large amount of feed means this base price is not great.
Cereals harvests are completed in most part of the EU, including France and further South. They are near completion in Northern Germany and Poland, and well underway in Eire, Denmark, Scandinavia and Baltic States. Again, yields have been bumper. For soft wheat, Strategie Grains, an analyst company forecast European production at 143 Mt, a considerable 12.3% increase on last year. The wheat area is up by ¾ million hectares and yields are also above the 5-year average.
In France, the wheat crop will be high at 38 to 40 million tonnes depending on whom you ask. Only one Department has recorded lower than average yields and proteins are high. The German and Polish crops are also good. Even outside the EU, the Ukrainians have also had high yields, and have already started their export campaign in earnest, with higher sales than last year and a target of 21 million tonnes, which is 5.5 million more than last year.
The EU is likely to have cut over 60 million tonnes of barley this year, mostly winters. France will have seen a rise in springs because of oilseed rape problems.
This means there will be a large EU crop this year and nearby neighbours also providing surpluses. Achieving exports from the UK might prove tricky. This explains why futures prices have hit contract lows in all positions in the last couple of weeks; we have lots to sell, everybody else who exports does too and those who import also have more grain than usual. It is clear what this might mean to prices, especially when the possibility of having tariffs looms over the UK crops. It is perhaps therefore no surprise that wheat values have fallen by £20 since June and £10 per tonne solely in August.
The weakening Pound has done little to retain any kind of value in commodities, in fact, comparing the UK Nearby wheat futures contract prices with the comparable French, a gap has opened up of about £10 per tonne more than usual. This might be the Brexit effect.
In last month’s Bulletin we wrote that the beet price for the 2020 crop was still to be agreed. The two parties, British Sugar and the NFU, are still deadlocked and it is reported it could be another month before the price is announced. This is difficult for growers with the autumn planting season upon them; they are having to make decisions about how much ground to leave for spring beet drilling without knowing the price. BS and the NFU have agreed a one-year contract price that is above this season’s level (£20.42 per tonne). However, the sticking-point is the value for a 3-year contract.
The decision by Defra to ban Metaldehyde slug pellets has been overturned by the High Court. Michael Gove announced the ban back in December 2018 (see December’s article), saying the pesticide would be phased out over 18 months. But a challenge by Chiltern Farm Chemicals into the legality of the way in which the decision to ban Metaldehyde by Defra was undertaken has been declared unlawful by the Court. In fact before the hearing was due to take place the government conceded that its decision-making process had been flawed.
Defra is now required to decide whether to grant re-authorisation for the products or to revoke the existing authorisations. For users, Metaldehyde slug pellets are expected to be available again with immediate effect.
The harvest is in its early stages; it started a little earlier than usual and for some, even earlier than last year. Considerable activity until Thursday last week was seen with barley, oilseed rape and even some wheat reaching the barns, but the storms over the weekend have halted most harvesting. We expect a picture of a stuck combine in Friday’s Farmers Weekly as usual!
For much of the UK though, the crops are in a good condition, especially the cereal combinable crops and early indications suggest good yields (albeit early). The jury is still out for oilseed rape, although, whilst we have heard a lot about crop write offs and poor condition crops, there are still plenty of farmers sitting quietly on what looks like a full field of seeds. It is difficult to tell before the combine has been through. The storm over the weekend has flattened some crops at a very late stage which might cause some harvesting problems.
In much of Europe, particularly, France and Germany, the two main grain producing countries, the recent spells of very high temperatures have apparently taken a toll on the ripening crops. However, the crop tonnages forecast remain comfortably above the very poor yields harvested last year.
Oilseed rape harvest started before the storm. Following the last couple of very dry days of last week, a few farmers had been harvesting very early in the day or trying to wet the seeds to a level that would be accepted by merchants. To recap, the standard FOSFA contract for oilseed rape is for 9% moisture. Oilseed rape is not accepted at moisture levels above 10% (or you would incur drying charges). You gain 1% in price for every 1% the moisture decreases to 6%. Below that point, it becomes difficult for a crusher to extract oils so is rejected. If you are testing the seed and the moisture levels are heading down towards 6%, advice is to stop harvesting, and restart early in the morning (better than late in the evening because the moisture may have reached the seed rather than just the pod). Wetting oilseed rape is not recommended, as it is often uneven, rather, mix it with some wetter seed to make an average moisture within the tight band.
Cereals
The barley harvest too is under way. It is early days and the better yields are always reported first so we reserve our judgement for a month. Barley harvest in France is a quarter through and moving northwards quickly. The very first wheat crops are starting to be cut now too, but it is too early to make any useful comments about it. More next month.
Most combinable cereals are grown in the Northern Hemisphere, so our harvest time will be more or less in line with most others’. Across the EU, harvest is quickly moving northwards, with considerably better results than the poor yields from last year. The Black Sea region and Ukraine are also harvesting, with yields up on last season, although the Russian harvest is smaller than initially projected. North America, the main breadbasket of the grain exporting world is wading through its winter wheat harvest, now being three quarters completed and in China, another large crop is being gathered.
Within a month, the analysts will start publishing their expectations of crop sizes, based not on planted area and trend yields, but more on actual reports coming in from the fields.
This all sounds rather bearish, and often is for a short period, whilst buyers identify what is available, in terms of quality, quantity and location. The calculators then come out and the premiums are established. We note that as the population continues to rise, the overall demand for grains is also increasing every year, and so to simply stand still, the world needs to harvest a record crop each year.
When it comes to marketing our combinable crops this year, we should be more focused on the impacts of a Boris Brexit than the actual marketplace itself. Yes, we acknowledge we made similar comments following last season’s harvest and nothing happened, but there is still a chance that Brexit will actually occur, and more importantly, that it might do so without a deal.
Those with combinable crops to sell are reminded that exporters are not able to book sales to the EU post-Brexit day, because they do not know what the price will be (tariffs or no tariffs), so grain long-holders (farmers) should consider the risks and benefits of holding grain unsold into the autumn. Bear in mind that oilseeds have no tariffs so should not be affected by them, beans have only a low tariff and are mostly exported to non-EU destinations so should be similarly unaffected. However, the cereals are potentially holding a lot of value at the moment because the tariff structure protects them. We will probably have a surplus of feed wheat and oats this year so it might be prudent to pass the risk of these crops elsewhere sooner rather than later (i.e. selling them).
As the northern hemisphere harvest gets underway, the forecasts for global grain output should become more accurate. The International Grains Council (IGC) released an updated forecast at the end of July which is summarised in the table below.
Wheat stocks are expected to rise according to the IGC to levels of 2018/19, or in terms of stocks as a proportion of usage, no real change from last year. However, from last month to this, the harvest expectations have declined slightly, making the stock level more akin to last year. A fall of 5 million tonnes from one month to another sounds like quite a lot but at this time of year when the crop is being gathered, it is minimal and of little impact to prices. Consumers are comfortable at the moment that stocks will be available for them of the quality and specification they require.
The same cannot be exactly said of maize, with production thought 35 million tonnes lower than last year; back to the level seen for harvest 2017. Consumption continues to go up each year, so stocks as a proportion of usage are forecast lower than previous years. The IGC has the stock level falling from 322 million tonnes to 273 million, a decline of nearly 50 million tonnes, or in terms of requirement, from 28% of a year’s requirement to less than 24%. This was already seen in June, but as we enter harvest, the figures will become more reliable. Whilst this is a more dramatic fall of stock and supply level than wheat, it is still not at a level that is making the consumers frantic.
Soya production is though unlikely to be as high as last year, also being closer to the previous year, but with consumption gradually rising each year, stocks are seen falling from 15.6% to 12.3%; potentially bullish for the oilseed (and protein) price matrix.
