Category: Arable

Global Grain Update

Global grain prices have been falling for much of 2024.  The main driver of the decline has been ample supplies of grain anticipated to come from South America.  Maize and soyabeans in Argentina and Brazil are still developing, making prices volatile in response to weather conditions.  Concerns over excess rainfall in the region prompted some fund managers to cover some of their record sold positions, supporting prices in the third week of March.  The role of fund managers in Chicago grain and oilseed futures markets is important for the direction of global prices.  If weather conditions turn, or other funds become more or less attractive the price of grain can move quickly.

With regard to supply and demand, the International Grains Council (IGC) published its latest update for the 2023/24 season, on the 14th March.  Furthermore, the IGC also published its first forecasts for 2024/25. These are shown below.

Despite cuts to global grain production in the Southern Hemisphere for the 2023/24 season, there is a greater fall in estimated consumption, resulting from reductions in feed use.  As a result global stocks are forecast to increase by 10 million tonnes.

For 2024/25, the global grain and soyabean stocks are due to rise again.  Whilst an increase in stocks is likely to move prices lower, the year-on-year rise is fairly small.  We are still some months away from the Northern Hemisphere harvest, and it would not take a big reduction in production (forecast or actual) to move global prices higher.

For the 2024/25 season, total grains production is forecast to rise by 28 million tonnes, 10 million tonnes of that rise is wheat.  Increases in wheat production are projected for Argentina, Australia, Canada and the USA.  Production is expected to fall in the EU, and the Black Sea.  However, usage of wheat is set to remain high and global stocks are forecast to fall by 5 million tonnes between 2023/24 and 2024/25.  This may provide some specific support to wheat prices.

UK Planted Area Update

Rainfall in the UK between August 2023 and February 2024 is the second highest for the period since records began in 1837.  This has caused major challenges for crop planting for the 2024 harvest.  In December, AHDB published the Early Bird Survey showing planting intentions for the coming year.  With weather issues continuing the Survey has been re-run capturing planting intentions up to the end of March.

Wheat planting is down 15% on the year at 1.46 million hectares; this includes a significant increase in spring wheat planting.  In 2019/20, the last seriously wet planting season, spring barley area increased considerably to pick up the slack.  The area of spring barley is forecast to increase for harvest 2024, to 881,000 hectares.  The oat area is also forecast to increase in response to the challenged winter planting conditions, with farmers seeing spring oats as an option.  The oat area is forecast at 208,000 hectares, an increase of 26%.  These spring cereals plantings are only the intentions of farmers.  The weather over the next few weeks will determine whether these intentions can be turned into actions.

Oilseed rape has also been challenged significantly, both by poor establishment conditions and increased pest pressure, notably from slugs, in the autumn.  The result is a 28% decline in the area likely to be taken through to harvest at 280,000 hectares.

One of the most notable increases this year is that of arable fallow, up 79%, to 558,000 hectares.  This area is will include a proportion of land which will be placed into environmental schemes.

Area figures only give a part picture of the state of cropping in the UK this season.  Whilst areas of winter crops are down there are significant area of crops in poor or very poor condition.  Very little of the poorer quality crop will be re-drilled, as such it will be carried forward with lower yield prospects.

Arable Roundup

Grain prices fell considerably during February.  The May-24 UK Feed Wheat Futures contract started the Month at £175 per tonne, as of 24th February the same contract was worth £164 per tonne.  It is a similar story for the 2024 crop, with November-24 Futures £9 per tonne lower on the month.

The direction of the UK market is driven by the availability of global grains.  Concern had been building about dry conditions in South America hindering planting progress.  However, both Brazil and Argentina have received rainfall and planting of maize and soyabeans has progressed.  Argentina is forecast to harvest an additional 22.5 million tonnes of maize in 2023/24 compared to 2022/23 (when it was affected by a widespread drought).  Brazilian grain and oilseed production forecast have fallen.  However, the country is still expected to harvest a combined 300 million tonnes of cereals and oilseeds; the second largest harvest on record.

Furthermore, grain prices are weighed down by cheap Black Sea wheat, slow US grain and oilseed exports, and the large sold position held by speculative traders in US grain futures.

Looking ahead to the 2024 UK harvest, the window of opportunity for further winter wheat plantings, prior to latest safe sowing dates, is closing.  Heavier ground is still sodden, especially across the East Midlands.  Crops on lighter land look far better.  UK growers face the prospect of smaller crops being sold at lower prices.  The poor outlook for the 2024 harvest is increasingly accounted for in grain prices.  Looking at the gap between old crop and new crop wheat futures (May-24 versus November-24), the new crop is worth almost £19 per tonne more that the old crop.  This time last year the November crop (November-23) was worth just £3 per tonne more than the old crop (May-23).

UK Feed Wheat Futures Chart

Source: AHDB

Farmgate grain prices have reflected the wider trend in futures, as shown in Key Farm Facts.  The UK still has ample old crop wheat and barley stocks, with prices uncompetitive into export markets.

Arable Roundup

Despite the ninth and tenth named storms (Isha and Jocelyn) since September hitting parts of the UK in January, rainfall has thankfully been lower than in recent months.  Whilst fields remain wet, and catching up on planting will be a while away for many, frosts have at least meant some arable farmers have been able to catch up on spraying.

In the six months to Dec 2023, England received 153% of the long-term average rainfall (1961-1990 average).  Of course, national average rainfall figures hide significant variation at a farm or field level.  Many farmers will have experienced flood levels seldom seen before.  This has led some to estimate cropped area could fall by as much as 15-20%.  UK wheat futures markets, whilst demonstrating a healthy premium to incentivise carrying grain from 2023 harvest beyond harvest 2024, have fallen considerably month-on-month.

The latest cereal and oilseed ex-farm prices are in Key Farm Facts.  Physical prices have not fallen by as much as futures prices, month-on-month, highlighting the impact that speculative trading can have on global grain pricing, and the tighter nature of the UK physical market.

AHDB has published its latest supply and demand estimates for cereals in the 2023/24 grain marketing season.  The figures show a reduction in the size of the 2023 wheat crop to 14 million tonnes (from 14.1 million tonnes).  There is also a significant increase in imports of 300,000 tonnes.  With demand falling for wheat from both millers and feed manufacturers, the additional imports are added to estimated stocks.

Any impact of a smaller crop from 2024, will already be priced in to markets in the UK.  As such, it will take the crop outlook worsening further, relative to current trade estimates, or a change in the global picture, for prices to rise.

Globally, maize remains in the driving seat.  The USDA increased its forecast of US maize production in 2023 and global maize ending stocks, in their January World Supply and Demand Estimates.

Emergency Sugar Beet Seed Treatment

Defra has authorised the emergency use of a neonicotinoid seed treatment on sugar beet seed in 2024.  This follows an application from the NFU and British Sugar.  However, Syngenta’s Cruiser SB, which is used to protect crops from virus yellows, will only be allowed under strict conditions.  This includes requiring the predicted virus incidence level to be 65% or above, as determined on 1st March 2024 by the Rothamsted YV forecast model.  If the threshold is reached, further conditions will be applied to the use of the seed treatment to minimise the risk to the environment.  This includes a maximum number of seeds planted per hectare and restrictions on farmers planting flowering crops in subsequent years in any field where treated seed has been used, allowing time for the chemical to break down.

Beet Price Deal

British Sugar and the NFU have finally agreed on a sugar beet price contract for the 2024 crop after months of tortuous negotiations.  The headline price is £40 per tonne – the same as last season.  There will also be an option for growers to choose a core price of £38 per tonne plus a market-linked bonus.  A further option is a contract that links the beet price to the futures price of processed sugar.  This will be limited to 35% of a growers contract tonnage.  A yield protection scheme will be offered at a cost of a £1 per tonne reduction on the price.  Growers within 20 miles of any British Sugar factory will receive a local premium of up to £2, based on distance to the factory.  The cash advance option, late delivery allowance, and frost insurance are on the same terms as 2023 crop.  Following the delays and issues with agreeing a price this year, both parties have committed to a shorter timeline next year which will see a conclusion of negotiations in time for an offer to be made by the 30th October at the latest.

Biofuels Boost

The UK will continue to have access to the EU biofuels market following a last-minute change of policy.  Biofuels being used in Europe have to comply with the EU’s Renewable Energy Directive (RED II), which sets standards – including ensuring the fuels have been produced in a sustainable way.  UK Farm Assurance schemes such as Red Tractor have meant that UK production has been compliant up to now.  However, from the end of 2023, the EU said it would only recognise schemes accredited in Member States.  This would have locked the UK out of the EU market and potentially had an adverse effect on grain prices.  The EU has now postponed the implementation of the new rules.  It is not yet clear, however, how long the delay will be for, or what processes the UK needs to follow to ensure long-term access.  

 

 

UK Arable Market

Whilst the weather might have slightly improved since the storms of October, ground conditions have not.  With many fields, particularly in the Midlands, still having standing water on them, the opportunity for winter cropping is falling.  In addition, there is the challenge of planting behind root crops and maize, still to be lifted/ cut.

The AHDB has published an updated Early Bird Survey estimate of cropping this month.  This shows that, before the bulk of the poor weather, farmers planned to plant 3% less wheat for harvest 2024.  Given the unfavourable conditions since that survey was conducted the decline in area is now likely to be far greater.  Industry sources suggest a fall of around 15% and this is contingent on significant areas of wheat being planted in January and February.

Whilst area may be down 15%, further questions will be asked of yield.  Some fields that were drilled prior to the storms are patchy and will yield lower.  Time will tell as to how the UK wheat crop will perform on average.

With a reduced area and likely lower yields, we will see a smaller wheat output from harvest 2024.  Prices for post-harvest 2024 will need to be high to encourage grain to be carried through from harvest 2023.

There are limited buyers of 2023 harvest grain at the moment.  This increases the amount of grain which could be carried into the new season.  If the trade is already working to 15% drop in crop area, the ability of prices to increase will be limited.  Also, it is important to remember that the global market will ultimately dictate UK price direction.

With an expected decline in winter cropping, attention will turn to spring cropping.  Certified spring seed availability is reportedly very tight, and prices are reflecting this.  Increases in spring barley are inevitable, but we have seen the impact of large increases in spring barley before.  There is only limited demand for malting barley, and, as such, those without a contract will need to pay close attention to the feed market.

The situation is not as severe as 2020, at the moment.  Wet weather during the planting window in 2019 resulted in a 24% drop in wheat area, and 19% increase in barley.  The result of this cropping change was an increase in the discount of feed barley to feed wheat of £26 per tonne, season-on-season.

With the drop in winter plantings, and price risk in barley markets, it is also likely we will see a noticeable increase in the area of oats, pulses, and possibly some land going into SFI.  It is important to pay close attention to margin impacts of any cropping changes, as well as considering the future impact of placing a proportion of productive land into an environmental scheme for a three-year period.

Sugar Contract 2024

There is still no agremeent on the price of sugar beet for the 2024 crop.  British Sugar has made a revised offer to growers of either a fixed price of £40 per tonne (the same as 2023) or a price of £38 per tonne with a variable market-related element.  It appears the main outstanding issue between British Sugar and the NFU is now around details of the futures-linked contract.  The parties continue to talk, but it seems arbitration to resolve the dispute becomes more likely.

Grain Market Update

Like the water sat on many headlands around the country, old crop wheat markets could rightly be described as stagnant!

Looking back across the May-23 UK feed wheat futures market, prices have been stuck in a channel from £194 to £204 per tonne since the beginning of September.  Prices are sitting in the bottom of that band presently and showing little sign of moving back towards the top.  This is partly driven by readily available Black Sea grain, keeping prices pressured.

The old crop market is also influenced by a large global maize crop, with the US harvest all but complete.  In November, the USDA added a further four million tonnes to its production forecast for the US, citing improved yields.  In total a further 2.5 million tonnes have been added to global maize ending stocks, compared to October’s forecast.  Ending stocks of maize, globally, are up 15 million tonnes year-on-year.

The new crop market is more interesting, unless you are looking out on waterlogged crops.  Poor weather conditions have led to estimates of a 5-10% decline in wheat area across the UK, France, Germany, and Ukraine (Openfield).  This is driving an £11 per tonne premium for November 2024, over current May prices.  Concerns are built into new crop pricing.  It will take a worsening of conditions to keep prices supported.

In the UK, grain markets are lacking activity.  There are reports of weaker demand for bioethanol production.  UK wheat prices are uncompetitive in export markets and prices are under pressure (see Key Farm Facts).  Milling premiums remain elevated.

Feed barley is at a more than £20 per tonne discount to feed wheat.  However inclusions in animal feed rations are already high.  As such, barley prices need to be competitive into export markets to generate extra sales.  Old crop malting barley premiums remain high.  With concern over winter wheat plantings, and a subsequent increase in spring barley plantings likely, new crop premiums may be lower.

Oilseed rape prices are benefitting from uncertainty over planting of soyabeans in South America.  The north of Brazil remains very dry, while planting progress in the south of Brazil has been delayed by heavy rains.  The pace has improved towards the end of November but remains behind average. While this is supporting oilseeds now, it could also hinder the maize plantings which follow soyabeans in spring, offering future support to grains.