Category: Arable

Global Grain Market Overview

UK grain pricing is fundamentally linked to that of EU grain markets and this has been the same as ever this season.  The EU is the top consumer of UK grain, with 88% of wheat and 85% barley exports going to the EU on average between 2017/18 and 2021/22.  This season, demand from the EU, relative to non-EU destinations has increased.  In the year to December, 94% of UK wheat exports and almost 100% of UK barley exports have gone to the EU.

The main reason for the uptick in trade with the continent is the sharp drop in EU grain production, primarily maize.  Output of maize was challenged by the hot, dry summer – falling by 28%.  The result of the drop in production is the need to import 51% more grains.  This is not new news, and as such not that important to current or future price direction.  But the pace of EU imports is.

According to EU Customs surveillance data, with just over half of the marketing year gone (to 5th February), the EU has imported 86% of its forecast requirement of wheat, 84% of barley, and 73% of maize.  The fast pace of imports has, in part, been driven by the volume imported from Ukraine.  With the Grain Corridor agreement due to end, unless it is renegotiated, in March, traders have been moving tonnages beforehand.  It is worth highlighting that there is a key uncertainty around how much Ukrainian grain will be re-exported from the EU to third countries.

However, with a large proportion of imports already done for the EU, prices are coming under pressure.  This has been seen towards the end of February, with a sharp drop in EU wheat prices dictating a £9.25 per tonne fall in nearby UK feed wheat prices.  The pace of EU trade will need to continue to be watched for the remainder of this season.

Below we set out some of the factors that could drive global markets as we move towards harvest 2023;

  • Geopolitics remains a key uncertainty; the 24th February marked one year since Russia invaded Ukraine.  Any significant escalation in the conflict or challenges in renegotiation of the Grain Corridor will support prices.
  • Brazilian maize production is also a key watch point.  Brazil remains forecast for a record maize crop.  With global grain supply and demand tightness underpinned by a lack of maize in the US, Ukraine, and Europe, a further tightening would also offer support.  If the Brazilian crop comes to fruition, prices ought to move lower.
  • Black Sea planting.  Around 44% of Russia’s wheat area was spring planted for the 2022/23.  Add to this the large volume of maize and sunflowers produced in Ukraine in recent seasons, and it is evident how important the weather (and conflict) in the Black Sea region is.
  • US maize and soyabeans areas.  The USDA is currently forecasting an increase in maize planting with soyabean area to remain unchanged.  There is still plenty of time for this to change.
  • EU weather.  Large parts of the EU have experienced warmer and drier winters than normal.  While crops generally looked healthy through winter, prolonged dryness is clearly concerning.  The same is true for parts of England, water levels have not returned to normal in some parts of the country following last years drought.

Sugar Beet

British Sugar (BS) is forecasting UK 2022/23 beet production to be the lowest for 47 years.  The processor has reduced its production forecast for the current campaign down to just 740,000 tonnes from 1.03 million tonnes in the previous year.  We reported in a previous article that the frost industry insurance had been triggered and that loads had been rejected due to damage.  Even though average UK yields look similar to the poor campaign in 2020/21, production is set be 18% lower due to a smaller planted area.  This year circa 87,000 hectares of sugar beet have been planted compared to about 104,000 hectares in the 2020/21 campaign.

Furthermore, due to the reduced production, it is reported BS is having to look at alternative sources of sugar from around the world, suggesting it has already sold more sugar than it is expecting to produce; this however, is likely to cost much more than what it will have contracted to sell it for.  The problem is European supplies are also very tight due to the area there also declining; this will be the fifth consecutive year of decline and although the frosts were more of a problem in the UK, yields on the continent have also been impacted.  Spot prices across the continent are around €1,000 per tonne with duty-paying sugar having to be imported.  BS is unlikely to be able to source enough sugar from Europe, and world market white sugar, with £350 per duty on top of any freight costs is likely to cost well in excess of €1,000 per tonne, meaning any imported sugar BS has to buy to service contracts already agreed for 2022/23 is likely to cost substantially more than the processor will have sold it to customers for.

Grain Market Update

Grain and oilseed markets have continued their decline through January.  Any uncertainty or risk premium associated with Russia’s invasion of Ukraine, almost a year ago, is priced in.

Combinable crop pricing is now very much centred on the balance of supply and demand at a global level.  Whilst grain markets are tighter year-on-year, expectations of large maize production in Brazil are pushing prices lower.  There may be some support going forwards, although this will depend on the extent to which dry weather impacts Argentinian maize and soyabean production.

Crops in the Northern Hemisphere are developing well.  A generally mild winter across Europe and the Black Sea has aided crop development.  That said, close attention will be paid to Ukrainian output, particularly of maize.  North America had been an area of concern with drought in key production regions but recent rainfall has contributed to the decline in prices.

UK markets have, unsurprisingly, followed the trends of global combinable crop markets.  Ex-farm UK feed wheat was quoted at £213  per tonne on 27th January 2023, down more than £15 per tonne on December levels.  Milling wheat prices have shown more resistance to the decline in global grain prices.  Ex-farm milling wheat premiums are approaching £57 per tonne.  With expensive nitrogen, and a lack of recommended Group 1 milling wheat varieties, there is a challenge for 2023 milling wheat supply.

Feed barley prices have also declined by less than feed wheat, down more than £8 per tonne from December levels, at £201 per tonne on 20th January 2023.  For domestic grains there will be demand concerns; poultry placings in November and December were noticeably down on year-earlier levels.  Additionally, the breeding pig herd is reduced following the last two years of challenging margins.

In the UK, ex-farm oilseed rape was quoted at £434 per tonne in January, around £134 per tonne behind January 2022 levels.  The decline has been driven by larger oilseed crops globally and reduced crude oil prices.  Soyabean production is forecast to be up almost 30 million tonnes year-on-year; largely driven by South America.  Argentinian dry weather may offer some support.  Additionally, large biodiesel mandates in Brazil and Asia could offer long term support, if unmatched by oilseed production increase.

Other protein prices have been stable.  Feed bean prices have fallen by £7 per tonne month-on-month, to £248 per tonne.  Feed pea values increased by £3 per tonne, to £248.

Sugar Beet

Due to the cold snap in December, NFU Sugar and British Sugar have confirmed the 2022 frost insurance policy has been triggered, although growers do not have to do anything to claim it.  All those eligible have had a claimed lodged by NFU Sugar.  All growers of sugar beet for British Sugar are covered (British Sugar pays the insurance premuim) provided a crop declaration was submitted before September 2022 and unless a growers’ entire crop had been delivered by 15th December.

All calculations for compensation will be carried out at the end of this year’s campaign as compensation is based on the Adjusted Tonnes delivered by a grower at the end of harvest.  Growers are insured based on their anticipated production, which equals Area multiplied by 5-year average yield, less 7% this year to take account of the state crops were in at the end of the summer due to drought or CTE if that is lower.  Compensation payment is calculated as follows:

First 15% loss – No Payment – effectively the policy excess

Losses between 15% and 30% – Paid at full contract rate – £27 per tonne

Losses over 30% – Paid at half contract rate – £13.50 per tonne

The policy is triggered if the average minimum temperature is recorded at -4°C or lower for a rolling 10-day period up to and including 30th  January.  The frosts in December have damaged crops, loads are being rejected by the processing factories and those that are accepted are likely to have reduced sugar content.  This is the first time the industry insurance has been triggered since it was set-up after the 2010/11 crop was hit by early frosts.  The frost damage follows a difficult year for growers who have seen their crops affected by drought and virus yellows.

Neonicotinoid Sugar Beet Seed Treatment

Defra has approved an emergency authorisation for the use of a nicotinoid seed treatment on the 2023/24 sugar beet crop.  However, Syngenta’s Cruiser SB, which is used to protect crops from virus yellows, will only be allowed under strict conditions.  This includes if independent modelling predicts a virus incidence of 63% or above, which will be known on 1st March.  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.

Defra has confirmed the overall ban on the use of neonicotinoids remains in place, but recognises the potential danger of an outbreak of beet yellow viruss poses on the production of UK sugar.  In 2020, 25% of the national sugar beet crop was lost, according to Defra this cost the industry £67m of total economic loss across the whole industry that creates nearly 10,000 jobs.  This is the third year the emergency authorisation has been approved.  Last year the threshold was triggered, although it was only 19% compared to this year’s 63%, however modelling predicted the virus incidence to be 68% on 1st March in 2022.

Crop Areas

The AHDB has now published its Early Birdy Survey of planting intentions at a regional level. The survey is conducted by The Andersons Centre, with the support of the AICC and other agronomists.

The intentions for 2023 show a year-on-year increase the area planted to wheat. UK wheat area is expected to reach 1,821 hectares, an increase from 1,809 hectares in 2022. At a regional level, plantings are seen falling in the key production regions East Midlands (down 0.5%) and the Eastern Counties (down 3.1%)

Wheat area is generally expected to rise in the North of England and Scotland. In Scotland, wheat plantings are seen rising by 8.5% to 116 thousand hectares. While wheat area is up, the high price of nitrogen at planting may have impacted both varietal and agronomic choices. While the price of nitrogen has subsequently fallen since planting, so too has the price of wheat.

The big “winner” is oilseed rape. Plantings of OSR are seen rising in all regions, contributing to a 14.2% rise in the UK planted area, 416 thousand hectares. Of course, pest pressure will be key for the crop, and it remains to be seen how much will be carried forward to harvest.

To accommodate the rise in OSR and wheat plantings, the area of barley and oats has fallen. The barley decline is driven by an expected decline spring barley, down 5.9% year-on-year to 632 thousand hectares. Winter barley is up but by less than the decline in spring barley, showing a 4.0% rise to 450 thousand hectares. The oat area is expected to fall by 4.3%.

UK Grain Production & Markets

Defra have now published official figures for UK grain and oilseed rape production.  Previous figures had only covered England.  The latest figures show UK wheat production, in 2022, at 15.54 million tonnes.  This is 14% above the 2017-2021 average (13.65 million tonnes).  The figures include the second highest wheat production figure for Scotland on record, going back to 1999. The Scottish production figure, 1.00 million tonnes is driven by a record yield of 9.3 tonnes per hectare.

Total barley production is also up despite a fall in overall acreage.  This is driven by an increase in the proportion of winter barley grown versus spring, as well as a rise in average yields.  Total barley production is seen at 7.385 million tonnes.  Oat production is down year-on-year, but remains above 1 million tonnes for the fourth consecutive season.  Oilseed rape saw a resurgence in rotations in 2022, and the resultant production is seen at 1.36 million tonnes.  Production of OSR remains below the 5-year average however.

UK grain markets have followed the free-fall of global prices into December.  Ex-farm feed wheat (spot) was quoted on 16th December at £229 per tonne.  This is down more than £15 per tonne from the end of November.  The price of feed wheat is now only £10 per tonne higher than the same point last year.

Feed barley prices have followed a similar path, and ex-farm barley is now just over £1 per tonne higher than 17th December 2022.  The UK grain market is fundamentally better supplied than it was last season.  There is also the wider factor that global markets seem ‘comfortable’ with the current drivers of supply and demand, despite grain markets being tighter year-on-year.  The milling wheat market continues to hold a premium in excess of £50 per tonne over the feed market, an ongoing reflection of the lower protein crop harvested this year.

Oilseed rape prices also continue to fall, driven by expectations of large oilseed crop globally.  This is especially true in Brazil where soyabean production is forecast to reach a record 152 million tonnes; up from 127 million tonnes last season.  Ex-farm oilseed rape was quoted on 16th December at £463 per tonne.

Pulse markets continue to suffer from a lack of demand and have tracked other commodities lower.  Feed bean and peas are quoted at £255 and £245 per tonne, respectively.

Investors Push Wheat Prices Lower

The value of wheat has fallen considerably over the past month.  A bumper crop in Australia, forecasts for strong South American maize production, and the continuation of exports from Ukraine have all contributed to the slide in prices.

Furthermore, data from the Commodity Futures Trading Commission (CFTC), who monitor the position of traders in futures market, highlights that ‘managed money’ funds have consistently been net-sellers of Chicago wheat futures since the beginning of October.  Fundamentally, this means that those in charge of investment funds expect wheat prices to go lower.  The net position of such funds shows that investment funds are now the most bearish they have been since April 2019.

This bearish view for comes despite the global supply and demand balance for wheat being the tightest since 2007/08 and is a potential indicator of recessionary concerns.

The maize picture, which is an underlying driver of wheat markets, has been more positive with prices rising in recent days.  Much still hangs on the South American maize crop.  There are concerns for Argentinian production amid drought, whilst the Brazilian crop outlook is still positive.  The Brazilian crop is typically more than twice the size of the Argentinian one.

May 2023 UK feed wheat futures have tracked the global wheat price decline, falling to around £240 per tonne, a drop of around £20 per tonne from mid-November.  New crop, November 2023, futures have dropped by a similar amount, to just under £228 per tonne, on 15th December.

While the mood is generally negative around grain markets, there are still some potential positive drivers.  In particular, there is much discussion at present about the decline in India’s wheat stocks. India consumes 13% of the world’s wheat, and stocks are expected to hit a six-year low.

UK Grain Markets

UK grain and oilseed markets have, unsurprisingly, continued to follow global trends.  Spot feed wheat was worth £241.50 per tonne in the week ending 18th November 2022; this is £16.70 per tonne lower than at the end of October.  On top of the global grain market falling, there are concerns about the impact of Avian Influenza and the smaller pig herd on feed grain demand.

Feed barley was worth £228.60 per tonne on 18th November.  This is a fall of £9.60 per tonne from the end of October.  The discount of barley to wheat has narrowed over the past month, this is reflective of the first official supply and demand estimates of AHDB, published in November.  The figures show opening stocks of barley at a ten-year low.  Despite this, the surplus available for export remains greater than last season and animal feed demand remains a key watch point.

While milling wheat prices have fallen, the premium of ex-farm milling wheat over feed has grown.  This is driven by reduced availability of high-protein milling wheat (13% protein plus) and the high cost of gluten as an alternative.  Milling wheat is at a near £55 per tonne premium over feed, as at 18th November.

UK oilseed rape prices have fallen in line with global oilseed benchmarks.  Ex-farm oilseed rape is now worth £518 per tonne, spot.  There is less demand in the UK this season with the closure of the Hull crushing facility, announced in June, set to take place in December.

The pulse market continues to suffer from a lack of demand, with the value of peas and beans having fallen to the end of the month.

Global Grain and Oilseed Markets

Throughout November the price of grain has fallen back considerably.  Futures prices were dropping before the announcement of a 120-day extension to the Ukrainian grain export corridor, 17th November.  Global grain markets have softened primarily on expectations of a large maize crop.  The crop underpins global feed and industrial (ethanol) markets.

There are expectations of record maize production in South America, in response to high prices.  Brazilian weather conditions appear well suited to a big crop.  Conversely, Argentina is also forecast for a record maize crop despite currently experiencing a severe drought.  The drought in Argentina has, however, trimmed production outlooks for wheat.  South American weather remains a key watch point for grain markets, particularly with an active La Niña (the third in three years).  La Niña brings dry weather to South America.

Despite forecasts for bumper maize production, the balance of global grain supply and demand remains tight.  This ought to offer some underlying support.  However, concerns about the impact of recession on demand, particularly industrial demand, seem to be outweighing this fundamental tightness.

Demand concerns are also impacting global oilseed prices.  China’s zero-tolerance approach to Covid is driving expectations of reduced palm oil demand.  This, combined with increased palm oil production in Southeast Asia, has depressed prices.  This has impacted rapeseed markets with the underlying value of rapeseed oil falling.  Additionally, a rebound in Canadian canola (rapeseed) production following last year’s disastrous crop is leaving global oilseeds well supplied.