Category: Arable

Grain & Oilseed Market

This month, the first UK wheat and barley supply and demand figures for harvest 2022 were published by AHDB.  A 15.7 million tonne crop has left the UK looking well supplied.

Given the increase in available supplies relative to last season, the discount of UK feed wheat futures to Paris milling wheat futures has grown.  This will prompt increased export demand for UK grains.

The Pound closed on Friday 21st October at £1=$1.13, almost 7% lower against the Dollar than on 1st July.  It is worth highlighting that this is up significantly from the low of £1=$1.07 at the end of September.  The political and economic uncertainty in the UK that has caused the Pound to weaken at least increases the attractiveness of UK exports.

Wheat values have bounced around over the course of the past month, mostly driven by uncertainty over the Ukraine-Russia grain shipment deal.  However, with things returning to the status quo in the Black Sea, at least for the time being, grain values have fallen back.  On Friday 21st October, ex-farm feed wheat was worth £256 per tonne, down £12 per tonne from 23rd September.  Milling wheat prices have fallen £11 per tonne over the same time period to £311 per tonne.

AHDB’s barley supply and demand estimates shows UK production at 7.2 million tonnes.  The commentary alongside the estimates highlights a decline in barley demand in animal feed driven by a switch to wheat.  Barley is currently at a £19 per tonne discount to feed wheat.  If demand falls further, without a strong gain in exports the discount will grow.  Given the reductions in the size of the pig herd, a fall in barley demand seems likely.

In the next three months, the size of the South American maize crop will be a key driver of price.  Brazil and Argentina are key suppliers globally and are set to experience a third successive la Niña. The weather pattern brings drier than normal weather and tends to reduce output.

UK ex-farm oilseed rape is worth £521 per tonne, up almost £30 per tonne on the month.  Vegetable oils are the key driver of support for oilseed rape.  The destruction of a key sunflower oil processing plant in Ukraine, uncertainty over palm oil output in Southeast Asia, and strong EU purchasing (both rapeseed and sunflower seed) combined to support prices.  A large soyabean crop, globally, and expectations of big canola (OSR) crops in Australia and Canada is tempering prices.

Feed bean values continue to move lower on lacklustre demand both domestically and for export.

UK Grain and Protein Prices

Recent rainfall has been beneficial, and planting of winter cereals is underway in parts of England.  The East in particular, however, remains very dry.  Primary cultivations are being completed, but increased fuel use and worn metal from hard ground is raising costs.

Unsurprisingly, UK grain and protein markets continue to follow global trends.  UK feed wheat values have moved back up to £260 per tonne (spot) for the first time since the beginning of July.  New crop (2023 harvest) values are likely to be around £10 per tonne below this value.  This based on the assumption that they are worth around £10 per tonne below November 2023 feed wheat futures.  In reality, it is hard to gauge a value for new crop wheat in such a high-priced market.

Milling wheat is currently at a £40 per tonne premium to feed wheat.  Early data from the AHDB Cereal Quality Survey shows that protein content is down this year; averaging just 12.5% on UK Flour Millers Group 1 varieties.  This does not necessarily mean that there will be an increased premium for ‘in specification’ wheat, with much depending on the performance of the crop in baking trials.  At the moment, the crop is thought to be performing well.

Feed barley is moving at a discount of approximately £20 per tonne to feed wheat, or £240 per tonne. The discount is at broadly normal levels, given the elevated price of grains.  Demand for barley will be lower this season owing to the reduced size of the pig herd.

Globally, it appears that there is going to be a much-improved supply of oilseed rape and other oilseeds this season.  This is primarily due to increased production, year-on-year, in Canada.  As a result, the price of rapeseed, nearby, has moved to pre-Ukraine war levels, to around £500 per tonne.

Feed bean values have moved back up with wheat values.  That said, pulse markets are thought to be well supplied, both domestically and globally.  Increases beyond those tracking wheat are unlikely especially given expectations of favourable weather for crops in Australia; a key export market competitor, during their spring.

Global Grain Production

The latest International Grains Council (IGC) supply and demand figures show a year-on-year reduction of stocks of grains globally.  The change in global grain supply is driven by tighter maize production, the price of which underpins the feed grains market.

The IGC forecast of maize production is ten million tonnes lower than it was in July at 1,179 million tonnes.  If realised, maize production would be 40.9 million tonnes lower than in 2021/22. Even with a fall in usage, ending stocks would be 5% lower year-on-year.  The maize production forecast has mostly declined due to the conflict in Ukraine.  However, the impact of drought conditions in the EU cannot be overstated.  Maize production in the EU is forecast at 59.6 million tonnes in 2022/23, down 8.7 million tonnes from the IGC’s July forecast.

Wheat production is forecast to decline by 2.9 million tonnes, whilst usage is seen rising by 2.5 million tonnes.  Global wheat stocks are forecast to decline by 4.6 million tonnes.  Excluding Chinese supply and demand from the equation, global stocks are estimated to fall by almost nine million tonnes.

With the grains supply and demand balance tightening, year-on-year, we can expect support for grain prices to remain.  But, bear in mind that the lack of supply from Ukraine will already be priced-in to some degree.  Any positive changes in the conflict will still drive a fall in prices.

The oilseed market is moving in the opposite direction to grains.  World soyabean production is expected to increase by almost twelve million tonnes.  Ending stocks of soyabeans are forecast to rise by almost ten million tonnes.  The next forecasts of global supply and demand from the USDA are due on 12th September 2022, with the next IGC figures published on 22nd September 2022.

Crop Areas 2022

Defra has published the first official crop area figures for harvest 2022.  These only relate to England at the moment; full UK figures are due next month.  Given the raft of data previously published on crop areas, there are no real surprises in the release.

In 2022, the English wheat area was 1.67 million hectares, an increase of 13,000 hectares on 2021.  Wheat area increased in all regions of England, except the Eastern region where area fell by just 0.3%.  The rapeseed area increased by the largest amount year-on-year.  Oilseed rape prices were considerably higher than in recent years during July to September last season.  As a result, the OSR area increased by more than 54,000 hectares, up 20% on 2021.  There were large increase in the East Midlands (+11.4Kha), West Midlands (+8.7Kha), Yorkshire and the Humber (+8.5Kha), and the Eastern region (+8.5Kha).  Further increases in OSR area were anticipated for harvest 2023.  However, given the incredibly dry summer and lack of rain in late August/ early September for many regions, planting issues will limit the increase.

The rise in rapeseed area for 2022 was, seemingly, at the expense of barley and oats.  The overall area of the barley crop in England was the lowest since 2015, at 782,000 hectares.  Spring barley area fell by the largest amount, down more than 60,000 hectares.  The planted area of oats fell by 19,000 hectares, to 140,000 hectares.  The area of rye in England has increased considerably in the last ten years.  In 2013, it was just 6,000; in 2022 this had increased to just below 40,000.  The crop has potential in multiple markets, including pig feed, which is likely a driver of the increase.

The first official Defra harvest estimates for cereals and oilseed production in are typically published in October, followed by the final UK results in December.  Looking to the 2023 harvest, the results of the ‘AHDB Early Bird’ survey (conducted by Andersons) will provide the first robust indication of areas.  Regional results will be available in December 2022.

Harvest 2022 and Prices

Overall

The UK grain harvest is all-but finished now and, overall, has produced excellent results.  Completion by the end of August must surely be a record?  The exceptionally dry and hot weather conditions have brought with it opportunities, but also challenges.  Almost all the harvest will have been gathered dry, but hot.  The grain drier was not needed to reduce moisture for almost all farms.  Yet some used them to cool grain.  Now the nights are cooling, farmers should be turning fans on to reduce the grain temperatures.  As frosts arrive this will be a useful time to cool the grain further.

Numerous farmers have experienced field fires with losses of standing grain.  At this stage we have no measure of how much has been lost in this way.  That risk is now subsiding, but farmers must pay attention to their straw stacks.  They should make more, smaller stacks than usual and preferably hidden from sight to as not to attract attention.

Wheat

Reports suggest this year’s wheat crop is excellent quality with a good yield.  After the dry conditions we have experienced since June, it is easy to forget the very useful spring rains we received as grains were starting to fill.  This was just as important as the ripening sunshine and the dry harvesting conditions we have had this summer.

Some reports suggest many farms have experienced greater than usual variation of  protein levels within the same varieties.  This means that grain sampling should be given particular attention this year.  Any additional mixing might be useful if this is possible, as segregating protein levels is difficult and probably now too late to do.

New crop wheat prices fell in the latter part of August.  Earlier in the month world grain markets were driven up by reports of very dry weather in the maize growing regions of the US.  In addition, China was claiming a wheat crop catastrophe, with very poor conditions, suggesting fairly extreme crop failure conditions.  However, it now turns out that China has harvested more wheat than last year!  This reduced forecast Chinese import demand.  Concerns around the Chinese economy have also dampened expectations of Chinese buying.  The last few days have seen rain in the Mid-west of the US which has eased concerns about the maize crop and pulled down all grains prices.

The other global factor of note is Ukraine.  Last month, we talked of how Ukraine and Russia had brokered a deal to allow Ukrainian grain exports to restart.  Grain was stuck in elevators, stores and farm barns.  We were skeptical it could be exported quickly or even reach the ports in many cases.  In fact, almost two thirds of a million tonnes were exported in the first three weeks of August.  Furthermore, the programme is continuing with expectations of 3 million tonnes going out in September.  Not only does this provide grain that the world market had largely written off, but also makes storage space for the new crop.  The Russian crop has also been good and exports have been high – partly making-up for the tonnages lost to the world market from Ukraine.

Barley

The UK barley crop is proving to be of a particularly high quality; most growers are thrilled with their results.  However, when everybody shares such success, the market reacts.  Indeed, the feed wheat:barley spread has grown to up to £20 per tonne and prices might have to decline further as UK barley is still not competing in the export market.  Furthermore, the malting specification, especially for springs is so good that many crops that would have achieved malting specification in previous years will end up being fed.  The malting premium has been falling as so much of the crop meets the required specification.

Reports from Scandinavia and other parts of the EU also highlight high quality and good yields, suggesting the UK malting barley crop faces some stiff competition in the marketplace this autumn.

Beans

Beans ripened almost too quickly this year.  Being usually among the last crop to go through the combine, their ripening from the high temperatures was a little premature.  Small bean size, especially in the spring beans, will have reduced the crop size to an extent.  Shattering bean-pods has also been an issue.  However, overall most farmers are relatively happy with their crops.

OSR and Drilling

The oilseed rape harvest was completed in record time.  This was the case throughout Europe as well as in the UK.  Not only is Europe reporting 10% more OSR than last year, but the Canadian crop is apparently half the size again from last year.  Australia too, is reporting 10% more area this year.  Even in Ukraine, where the crop had been partially written off, a reasonable tonnage has been harvested; more than one might have expected in the circumstances.  Prices have fallen in response and are now at or near to the levels in February – before the Ukrainian war began.  This is £220 beneath the highs of mid-May.

Little OSR drilling has taken place so far, with soils too dry to take the seed or allow germination.  What little rain has fallen has barely softened the tops of the soils, rather drained through the cracks in most fields.  Some are becoming concerned with this, although there is still ample time for rains to fall to allow satisfactory drilling and germination.

 

 

Labour Shortages

The NFU continues to campaign for the Seasonal Workers Scheme (SWS) to be made ‘fit-for-purpose’.  A report, based on a survey of members, has calculated that £22m worth of fruit and veg was directly wasted in the first half of 2022 due to a lack of labour for picking and grading.  The NFU states that, as the survey covered only around a third of the sector, the true figure for abandoned crops would be nearer £60m.  The Union is calling for more visas to be issued under the scheme next year.  The 2022 SWS offered 38,000 places – the NFU states the sector needs 70,000 seasonal workers.

Ukrainian Grain Shipments

On 22nd July, Russia and Ukraine reached an agreement to allow shipments of grain to leave Black Sea ports.  Reports suggest that up to 20 million tonnes of old-crop grain, needs to be exported from Ukraine.  Understandably, the news of the grain deal caused markets to fall significantly, owing to expectations of increased grain availability.  UK feed wheat futures (November 2022) dropped by £16.75 per tonne on the day.

Prices have since recovered, despite the first vessels having left Ukraine.  One vessel has successfully passed inspection in Turkey, en-route to Lebanon.  The continued movement of vessels out of Ukraine ought to lead to a fall in prices.  However, there are some key considerations which may limit any drop. These include;

  • Volume of grain – the primary factor, which could prevent a sustained fall in prices is the volume of grain which needs to be moved.  The grain deal only runs for 120 days, yet if reports are to be believed there is circa 20 million tonnes of old crop grain alone needing to be moved.  That is around 170,000 tonnes of grain per day.  There are a number of vessels waiting to leave Odessa, a key grain port, which will move with comparative ease, but this will not be the case for all of the grain.
  • Logistics – logistical challenges are likely to restrict the volume of grain that can be shipped. Contrary to some reports, the volume of grain needing to be exported is not held at ports, or in a single province.  It needs to be moved from within Ukraine to ports before it can be shipped.
  • Insurance and crew – one of the primary concerns surrounding the ability to ship grain was the insurance premium on vessels although, given grain is now moving, this would not appear to be to prohibitive.  Crewing the vessels may be another challenge, each vessel needs 20+ crew.
  • Russia – the big caveat to all shipments at the moment is Russia’s intentions.  The day after the deal was signed, it shelled the port of Odessa.  This was followed a few days later by the killing of a prominent Ukrainian grain exporter in Mykolaiv.  Similar incidents over the next 120 days will have as much impact on grain prices as the movement of vessels out of the Black Sea.

Shipments of grain out of Ukraine will ease prices, however, there still remains a lot of grain to be moved.  The risk of Russia reneging on the shipment deal will also remain a concern.  This will fundamentally limit the fall in prices.  Furthermore, it is worth highlighting that there is still underlying support for grain prices with supply and demand of global grain tighter year-on-year.  There is also continued uncertainty over the condition of the EU maize crop, due to heat stress, keeping prices supported.

UK Grain Market Update

The UK grain and oilseed harvest is well ahead of typical pace. Much the UK barley crop and swathes of the Oilseed Rape crop have been cut. Many farmers are now well into their wheat crops some 7 to 10 days ahead of normal. Early indications point to high bushel weights among winter grain crops.

UK grain markets have tracked global prices in recent weeks. Both new and old crop wheat prices have fallen in response to the availability of grain in Europe and the US. UK feed wheat prices (ex-farm) were quoted at just over £242 per tonne on 22nd July. Milling premiums have also fallen back to around £25 per tonne, ex-farm. However, if high specific weights persist throughout harvest, diluting the proportion of protein, we are likely to see an increased premium for good protein levels.

Feed barley prices have been pressured downwards by harvest progress, quoted at a £31 per tonne discount to wheat, at £211 per tonne.

Oilseed rape prices have also fallen considerably over the course of the last month. Oilseed rape (spot) is now worth £534 per tonne, down from £596 per tonne at the end of June. This is in part  due to the move from old crop to new crop pricing. Similar declines have been seen in November 2022 Paris Rapeseed futures. This points to an overall easing in response to improved supply and weaker demand of oilseeds globally. An increase in oilseed rape plantings is anticipated for harvest 2023. However, a lack of soil moisture may cap these gains.

Feed beans and peas were quoted at £282 and £272 per tonne, respectively (spot, ex-farm). Prices are back to tracking wheat prices closely after wheat had opened up a large premium earlier in 2023.

Harvest pressure is inevitable at this time of year. A greater surplus of UK grain, either for export or closing stocks, is expected in the coming season. This will drive a closer relationship between UK and EU grain prices. While there is short term pressure in prices, long-term the global supply and demand of grains remains tight.

Global Grain Markets Update

Global grain market prices have fallen over the last month. Global grain harvests are progressing, and Russia and Ukraine have reached an agreement, mediated by Turkey, on the movement of grain. Both of these factors have eased concerns about tight supplies in the coming season. Despite the easing of supply concerns, and prices, in the short term, some underlying concerns remain.

The big news towards the end of July, was the agreement between Russia and Ukraine of new export channels. Again, this has eased some short-term concerns. Grain prices moved sharply lower on Friday 22nd July as a result. However, agreeing that grain can be exported from Ukraine is very different to the reality of actually exporting it. On Saturday 23rd July shelling resumed at the port of Odesa, the key grain terminal covered by the agreement. Even if a solution is found and ports are de-mined, insurance premiums on vessels will surely be much higher than previously, which would impact competitiveness of the region.

In Europe and North America, grain harvests are progressing well, benefitted by dry weather. The winter wheat harvest in the US is 70% complete, in line with average progress. Additionally, the condition of the spring wheat crop is vastly better than last season. The US has exported large volumes so far, supporting the view of larger crops.

In France, the wheat harvest is 84% complete, as of 18th July. This time last season it was only 12% complete. Again, progress has been good following hot dry conditions. As with the US harvest this fast pace to harvest has eased short-term global supply concerns.

Whilst hot weather in the EU has allowed harvests to progress, it is concerning for the development of the maize crop. The amount of the maize crop rated “good” or “excellent” fell by eight percentage point in the week to 18th July, to 75%, while this is still positive if high temperatures continue, conditions could fall further offering some support.

The United States Department of Agriculture released its global supply and demand estimates earlier in July. These estimates highlight concerns about overall availability of grain this season. The stocks-to-use ratio of wheat, barley, and maize is the lowest since 2013/14. While not dramatically tighter than last season, it is worth bearing in mind that China holds 58% of the world’s grain stocks, at least on paper. If we exclude China from the stocks-to-use calculation, availability for the coming season is the lowest since 1996/97.

Beet Price

Sugar beet growers are set to receive a significant price increase for next season.  NFU Sugar and British Sugar have announced a beet price of £40 per tonne for 2023/24 crop; a 48% increase on the current price.  Also included in the offer is a number of options for growers to opt-in to mitigate risk and provide yield protection;

  • An option to purchase a yield guarantee product that protects income against yield losses
  • A ‘futures-linked’ variable price contract for the 2023/24 crop which enables growers to make more dynamic pricing decisions for up to 20% of their contracts
  • A local premium – growers within 20 miles of any British Sugar factory will receive a local premium of up to £2 per tonne, based on distance to the factory
  • Revised multi-year prices – all growers with an existing 2023 commitment will automatically receive an upgrade to £32 per tonne, from £25 per tonne.  Growers can upgrade this further to £40 per tonne if they commit to grow sugar beet in 2024.

With input costs soaring and other crop prices experiencing significant price rises, it was important that beet producers received this timely offer to ensure beet remains part of grower’s rotations.  The sugar beet area has declined over the last two seasons and British Sugar is hoping this new offer will halt this.