Category: Arable

Old crop wheat prices have been higher than new crop values since the back end of last year (see the chart which compares May 17 (old crop) prices with November 2017 (new crop) prices).  That price spread has continued to increase, to a point where they have risen to comfortably over £10 per tonne above the new crop’s value.  This suggests that the long holders (farmer and merchant) are more likely to sell as much as possible before harvest, whilst the grain buyers, those processing the grain, might be tempted to go into harvest with as little physical stocks as possible.

Old crop and new crop values merge at harvest time as the last of the old and the first of the new meet, as some new crop is available. This suggests that either old crop values will fall or new crop prices rise as we get nearer to harvest. There is still ample time to consider this but it is also worth noting that old crop wheat is comfortably in the territory of contract highs, in fact, nearby futures contracts have not been anywhere near to £150, today’s values, since the middle of 2014.  Export sales will be slowing and if it becomes cheaper to import grain, the seller may have left it too late.  For those with old crop still to sell, maybe this is a useful time to think about marketing the rest.

The opposite is happening in the malting barley market at the moment with short term demand for supplies pushing old crop upwards.  Also, people eat more porridge when it is icy.  So the last few weeks of cold weather have put a small burst into the oat market.  It puts UK oats out of reach from EU buyers, at least for the time being.

With oilseed rape, short term prices are currently relatively buoyant, although as the Southern Hemisphere harvest has started, large vessels will shortly arrive, to potentially remove much more upside in the rest of the old crop marketplace. However, with soybean leading the price matrix for oilseeds, it is worth noting that there is some disagreement on where the crop size is heading.  Speculators who play money games with the markets are currently long and increasing their positions, thereby presumably expecting a shortfall in the crop this year, whereas some analysts are speculating a whopping crop, led by Brazil.  This could lead to some sharp falls if the analysts are proven correct.

In the Autumn, we reported that data from the Earlybird survey suggested that spring cropping would be up this year, especially spring barley. The feedback from seed merchantscorroborates that.  Many merchants are reporting that some spring barley seed varieties are running low on stock.  The considerable rise in spring barley (our projection is currently for a 10% rise) is expected to be mostly in the Eastern and Central parts of England, with no rise in Wales, the South West or Scotland.

The European Commission has registered a European Citizens Initiative (ECI) inviting the Commission to ‘propose to Member States a ban on Glyphosate’.  In addition the petition asks for a reform to the EU pesticide approval procedure and to set EU-wide mandatory reduction targets for pesticide use.  The Initiative will be formally registered on 25^th January and this will start a one-year process of the collection of signatures in support of the ECI.  If the ECI receives one million statements of support, from at least seven different Member States within the year, the Commission must decide within three months whether it will follow the request or not.  Either way it must explain its reasoning.  This latest saga follows the approval by the EU Commission to extend the current licence for Glyphosate for a further 18 months last summer.  The temporary extension allows time for the European Chemicals Agency (ECHA) to deliver its opinion on the possible health risks of the common herbicide, which is expected by the end of this year.

The sugar beet harvest currently underway looks set to deliver average yields.  After two seasons of high output, the 2016 crop looks likely to return to an ‘average’ level – around 70 tonnes per hectare, or a bit below.  This is somewhat better than looked to be the case at one point.  Late-season growth has seen the crop recover after a slow start caused by a cold spring and the wet early summer.  However, it seems there is quite a large variation in yields between regions and growers this year.  The contract price for the current crop is an unexciting £20.30 per tonne, so some decent yields will be needed to produce an acceptable gross margin.  Turning to the 2017 crop, the processor, British Sugar, is still offering additional Contract Tonnage Entitlement (CTE).  This is partly to get the area grown back to ‘normal’ levels after two years of reduced plantings.  But the 2017 crop also sees the end of EU production quotas for sugar, offering scope for further expansion.  The price, as reported in the July Bulletin, is a basic £22 per tonne for 2017, with bonuses, based on the EU sugar price, potentially pushing this higher.  The EU market has risen to a level where these bonuses are now in play.  However, they are calculated over the course of the 2017/18 marketing year which only starts on the 1^st October 2017.  Much could happen over the next year or two.

Some global commodity forecasters are suggesting 2017 could herald an upturn point for global grain prices. Forecasters at Metlife, which is one of the largest US insurance companies, handling the lions-share of US farm mortgages, is suggesting the US maize yield will turn out to be lower than official estimates.  Furthermore, the firm highlights that most commentators have highlighted that planting intentions are lower than they have been for a few years.  Let’s hope they’re right, because the Food And Agriculture Organisation of the UN (FAO) thinks the exact opposite; pointing to record stocks and signs of another good harvest in 2017 in many countries already.

The USDA, whilst not forecasting prices, has been increasing its 2016/17 global wheat ending stocks by nearly 3 million tonnes, a relatively notable amount for this time of year. If the USDA is right, stocks would end up 11½ million tonnes higher than last year and 35 million higher than the year before that (2014 harvest).  That does not sound particularly bullish for prices.  Indeed, the same is true with the USDA’s coarse grain estimates; the 2016/17 ending stock projection has risen this month by 4½ million tonnes, now 10 million tonnes higher than the opening level.

At the same time, reports from the French Farm Ministry state that French wheat plantings are at a 26-year high, leading to a reduction of oilseed rape and winter barley areas.  Again it is difficult to see a positive for wheat prices in this information, apart from another French announcement that the 2016 harvest of grain maize is at a 26-year low.

One other issue to be aware of is the recent appointment of Scott Pruitt as Donald Trump’s head of the US Environmental Protection Agency (EPA).  He is a climate change sceptic and critical of the US biofuel policy.  The US biofuel industry uses more maize than the country exports, at over 50 million tonnes.  We ponder what changes might be afoot in this area in 2017.

On the domestic front, the fast start to the UK grain export campaign has hit the rocks with a substantial slowdown in October and probably November and December.  Notwithstanding a query the HMRC has with the latest release of trade data, it claims exports of wheat were 100,000 tonnes lower in October than in September.  This will be at least in part because of the Pound strengthening slightly at that point.

As we near the end of the UN International Year of Pulses, it is thought exports of UK beans is running at about half of last year’s rate.  This is partly because Egypt, the main buyer, continues to have issues with funding purchases.  At the same time, the Australian harvest will be well on its way too.  Feed grade beans are being used by domestic processors.  Prices are £20 per tonne stronger than this time last year which represents a 16% price rise.  Wheat is now 25% higher than it was in December 2015 and oilseed rape a very respectable 35% higher.  That’s a great thought for a Happy Christmas.

Twenty nine new varieties have been added to the AHDB’s Recommended Lists for cereal and oilseeds 2017/18 whilst 28 varieties have been removed.  This year sees the addition of six soft wheats whose markets include distilling, soft biscuit wheat for export and soft endosperm feed.  This is the first time for four years additions to this category have been seen.

For winter wheat, the overall list increases by five.  New varieties include KWS Zyatt a provisional nabim Group 1 high yielding, high quality bread making wheat.  Two new spring varieties have also been introduced.  KWS Cochise and KWS Chilham are both high yielding nabim Group 2 milling wheats and can actually be drilled in autumn or spring (useful for crop diversification?) due to having orange wheat blossom midge resistance.  The new wheat varieties all show good resistance to yellow rust, having ratings of between 7 and 9.  This year Septoria tritici ratings are now reported to one decimal place, with eight of the new varieties having resistance scores between 6.2 and 7.3. In addition this year’s list also shows the percentage protein achieved in milling trials.

The new oilseeds list sees a balance between yields and resistance.  The new varieties show good resistance to light leaf spot and phoma stem canker.  Three new winter feed barley varieties have been added; KWS Creswell is a two-row feed variety for the north, Funky is a six row conventional and Sunningdale is a six-row hybrid variety.

A summary of the new AHDB Recommended Lists can be found on the AHDB website at https://cereals.ahdb.org.uk/press/2016/november/28/six-new-soft-feed-wheats-join-new-rl.aspx  The full AHDB Recommended Lists booklet will be distributed in early 2017.

As expected, the final estimates for the 2016 Scottish cereals and oilseed rape harvest confirm it was a poor year.  The cereals harvest is put at 5% lower than the 10 year average; down 11% compared to 2015.  Both yields and area were lower than in 2015.  The total cereal area decreased by 3% to 428,000 Ha; yields were 5.4 tonnes per hectare for spring barley and 8.4 tonnes per hectare for wheat.  This has resulted in a15% fall to 1.3m tonnes for spring barley production, Scotland’s most important cereal crop.  Winter barley and wheat production have declined 19% (to 329,000 tonnes) and 9% (to 926,000 tonnes) respectively.  Only oats bucked the trend with the crop yielding 200,000 tonnes for the first time since the early 1970’s.

Oilseed rape production was the lowest since records began in 1992.  The average yield was just 3.3t/Ha resulting in total production of 102,000 tonnes.  There was no specific weather event which affected production, it was a combination of factors, with less than ideal weather at seed bed preparation time, overall growing conditions were not great and the weather at harvest was challenging.

The 2016 British potato crop will be the fourth lowest since the 1960’s according to the first estimate produced by AHDB Potatoes.  Whilst the planted area is 4% up on 2015 at 116,000 hectares, yields look set to disappoint.  Average yields are 8% down year-on-year at 44.9 tonnes per Ha – the lowest since the 2012 harvest.   Total production is put at 5.22 million tonnes, well below the 10-year average.  Similar trends in output are evident across North West Europe.  Usually, when the GB harverst is low, it draws in imports from continental Europe.  But with reduced volumes in countries such as Belgium an the Netherlands, plus the effect of the weak Pound, there has actually been a strong export trade so far this season.  All this has helped to push market values up to high levels.

In commenting on current grain markets, we could simply cut-and-paste from the articles produced over the last two or three months – all the same factors continue to prevail.  As previously outlined, there is fundamentally plenty of grain in the world.  The USDA increased its forecasts for both wheat production and year-end stocks again this month.  After the initial shock of the Trump victory, the Dollar has strengthened, hitting the competitiveness of US exports.  All this keeps the ‘base’ price for wheat at low levels.  However, both the EU and the UK markets have been shielded from these falls.  The European wheat market is considerably tighter than the US.  This is a combination of lower output from the last harvest, and high volumes of exports as a result of favourable currency movements.  This is especially true of higher-quality wheats.  This latter point has benefitted the UK, where our quality has generally been far better than continental harvests.  The export campaign has been good so far, of course helped by the weakness of Sterling.

However, UK wheat is starting to become uncompetitive on export markets as domestic prices rise on the lack of availability, and the slight firming of Sterling over recent weeks.

Oilseed prices remain robust.  In the US the Government has mandated a higher-than-expected quantity of biofuels for the coming year, pushing up soya values.  In the EU, planted areas of oilseed rape are reported to be down in both France and Germany, as well as here in the UK.  Whilst Paris prices have reached two-year highs, the effect on the UK market has been muted by the uplift in Sterling.

The AHDB’s Early Bird Survey (EBS) has been published.  It shows the wheat area for harvest 2017 marginally lower, with larger declines in the oilseed rape, winter barley and pulse areas.  The area of spring barley is forecast to rise again.

The survey is undertaken by the Association of Independent Crop Consultants (AICC) and The Andersons Centre each autumn and in the past has provided accurate figures at an early stage in the cropping year.  Data has been gathered from 262,500 hectares of arable land across GB to assess national cropping intentions.  The table below shows the estimated crop areas for 2017 when the EBS results are overlaid onto the UK provisional June 2016 crop area figures.

EARLY BIRD SURVEY (EBS) ESTIMATES OF GB CROP AREAS FOR HARVEST 2017
‘000 hectares	DEFRA June Survey 2016	EBS Forecast Harvest 2017	Change
All Wheat	1,824	1,799	-1%
Winter Barley	438	397	-9%
Spring Barley	685	799	17%
Oats	141	130	-8%
Other Cereals	41	44	7%
OSR	579	557	-4%
Other Oilseeds	28	54	95%
Pulses	230	216	-6%
Arable Fallow	251	214	-15%
Other Crops on Arable Land	333 ¹	364 ²	9%
Total	4,550	4,574
Source: DEFRA /The Andersons Centre ¹ Sugar beet, potatoes & vegetable; ² Sugar beet, potatoes, maize, vegetables, roots & other stock feed

The results show that the wheat area is forecast to fall marginally compared with last year to 1.8 million hectares; this is 4% below the five-year average.  The wheat area also includes spring wheat which, anecdotally, is reported to continue to be rising.

The winter barley area is expected to decline by about 9%.  Conversely, the spring barley area is forecast to continue to increase, up by 17% compared to last harvest.  This gives the highest spring barley area since the late 1980’s (apart from harvests 2001 and 2013 when poor planting conditions in the previous autumn led to an unusual increase in spring cropping).  However, it is possible that some spring barley could be swapped for spring wheat if the price spread between wheat and barley continues.

This autumn, drilling conditions in most parts of the UK have been good, (apart from a few areas being dry) which means that the majority of planned winter cropping should have taken place.  These sorts of conditions usually see high winter wheat and winter OSR plantings.  The increase in spring cropping is therefore due to reasons other than poor drilling conditions and is more than likely due to black grass control.

The oilseed rape area is anticipated to fall again; this is the fifth consecutive year that the area has fallen and is the lowest since 2004.  The overall forecast decline of 4% masks key regional differences.  In the West Midlands, South and Scotland the area is expected to actually increase on the back of better prices (especially compared to the economics of alternative break crops).  But in the East, the area is down by 28%, as producers struggle with flea beetle and dry conditions at drilling.

After seeing significant rises in 2015 and 2016 the pulse area is forecast to fall by 6%.  This would be back to 2015 levels, but still well above the five-year average.  It seems whilst many were using pulses to meet their EFA requirements, lacklustre pricesfor the crop has seen producers find alternative options to meet these measures.  Fallow land is seen to be declining by 15%, probably due to markets looking better for most combinable crops and a lower uptake of agri-environmental schemes.  The area for ‘other crops’ has been less reliable in previous years, but is expected to increase mainly driven by a rise in maize plantings and temporary grass destined for anaerobic digestion plants or for weed control.