Tag: Arable market

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.

Grain Market Roundup

Over the last month, the prices of UK wheat and barley have fallen.  This has been driven by an improved global supply and demand picture for wheat and a stronger Sterling.

Global Market Drivers

The USDA published its latest supply and demand figures early in January.  The report showed improved global stocks of wheat, including amongst the top exporters.  The picture for maize tightened globally, with forecasts of Brazilian production falling by three million tonnes, to 115 million tonnes.  However, the combined production of maize in Brazil and Argentina was only 0.76 million tonnes below trade estimates.

South American production of maize is still something to watch closely for price direction.  Rainfall has improved crop prospects lately, but Brazil and Argentina are forecast to experience drier conditions over the next few months which could hamper production, tightening global markets.

In the short-term global politics also need watching closely.  Tensions between Russia and Ukraine, and in Kazakhstan, have increased global wheat futures in January.  The three countries account for about a third of global wheat exports.  Any escalation or de-escalation of tension will impact prices.

As we move forward, grain prices are increasingly going to be driven by the prospects for next season.  The International Grains Council is forecasting that global wheat production will increase in 2022/23.  Stocks are forecast to stay relatively unchanged.

Domestic Markets

UK spot ex-farm feed wheat prices fell from £219.10 per tonne on 17th December 2021, to £213.60 per tonne on 14th January 2022.  As well as the global factors outlined above, the fall in prices was amplified by a 1.7% increase in Sterling against the Euro, over the same period.  Milling wheat premiums remain historically strong but have fallen back recently.

UK ex-farm barley prices also moved lower across the month.  The barley market is closely tracking wheat this season, with supply and demand in both markets tight.  Feed barley was quoted at £203.40 per tonne on 14th January, down £5 per tonne from 17th December.

Oats have moved against other grains over the past month.  The high price of other grains has increased the inclusion of oats in compound feed rations (to November) according to AHDB figures.  As a result, oats have closed the gap slightly to other grains, but remain at a significant discount to barley.

Spot ex-farm feed bean prices have been flat through January, at £246 per tonne.  However, reports suggest that Australia has sent large shipments to Egypt which led to price falls on increased competition.

Rapeseed prices surged again into the New Year.  Demand for rapeseed oil in the EU remained strong despite high prices.  Ex-farm rapeseed prices (spot) are now quoted at £613.20 per tonne. There is a significant discount into new crop, owing to better new crop prospects.

Arable Prices Fall

Prices for UK arable crops have fallen lately, pressured by global supply and demand.  On 9th December, the USDA released its latest supply and demand estimates.  The estimates increased the stock picture for both wheat and coarse grains, leaving the global market looking better supplied than a month ago.

A month ago, the slow progress in Australia due to recent rains had caused delays to harvest and exports, increasing prices.  However, harvest progress has improved with drier weather, and while exports will still take time to catch up, prices have fallen in response.  Beyond the improved situation in Australia, the next key event for grain markets will be South American maize production.  The crop is expected to be big, adding to the fall in prices, but with an active La Niña (which brings dry weather in South America), the crop reports need watching closely.

Domestically, we are seeing the price effects of global supply and demand.  The price of UK wheat while initially moving up through early December, has now fallen.  New crop wheat futures (November 2022), closed on 16th December 2021, at £195.65 per tonne.  Whilst down from the highs we’ve seen of late, this still represents good value in historic terms, and is mitigating some of the increase in input costs.

Ex-farm value, published by AHDB, lag the futures market, and as such, continue to show strength in the most recent publication (price to 9 December).  However, they do show that milling wheat premiums have remained strong.  In the week ending 9th December, ex-farm milling wheat was over £50 per tonne more than feed wheat.

Barley prices in the UK are also high, in historic terms.  The barley market is tight this year in the UK. Through the early part of the season barley remained a popular choice in animal feed rations.  This has narrowed the gap between wheat and barley.

Oilseed prices have also fallen over the last month. Domestic oilseed rape prices for old and new crop delivery have followed the direction of Paris rapeseed futures.  Oilseed rape (and rapeseed oil) prices had attracted a large premium over other oilseeds.  This premium has destroyed some demand and pulled prices down.  This is likely to continue, especially with Australia harvesting a record canola (rapeseed) crop.

Pulse markets have bucked the trend of other arable commodities.  The price of feed beans has remained relatively flat.  Trade has reportedly been ‘good’ in feed beans, but there are signs that demand may be dwindling.

November Arable Roundup

The price of UK cereals have continued to show strength throughout the last month.  Concern over global availability has pushed the value of May-21 UK feed wheat futures to fresh highs. Additionally, new crop (Nov-22) feed wheat has been trading at more than £200 per tonne through the latter half of November.  This offers a good opportunity to think about your average prices for next harvest.  This support in the futures market has translated into strength in ex-farm prices.  In the week ending 18th November, AHDB Corn Returns prices quoted ex-farm UK feed wheat at more than £214 per tonne.

One of the main drivers behind the continued strength in grain prices has been poor weather, delaying harvests in Australia, and causing quality concerns.  Available stocks in the Northern Hemisphere wheat exporters are tighter this season than they have been for many years.  The market is looking to Australia (and Argentina) to relieve pressure in the market.  However, delayed harvests and quality concerns puts a squeeze on availability.

Domestic milling wheat prices are also showing continued strength at present.  UK ex-farm milling premiums were quoted at just over £52 per tonne over feed wheat, in the week ending 18 November.  This reflects tight availability of quality, domestic wheat.

Barley values also remain supported.  The discount of feed barley to feed wheat has narrowed to levels last seen in August 2019, at less than £10 per tonne.  The surplus available for either stock or export this season is seen at the lowest level since 2018/19.  Strong domestic demand early in the season, combined with 267,000 tonnes of exports up to the end of September, has eaten into the exportable surplus and narrowed the wheat-barley spread.

Oilseed rape prices have backed off slightly over the course of November.  This is not overly surprising given how strong rapeseed prices have been.  The value of rapeseed oil is curtailing demand and this has removed some support for rapeseed prices.  Strength in the Pound has also pressured domestic rapeseed prices.  Sterling hit the highest point against the Euro since February 2020 in November.  This trend in Sterling may continue as we move towards the next meeting of the Bank of England Monetary Policy Committee on 16th December.  Close attention will be paid to decisions on interest rates at the meeting, with inflation still prevalent in the economy.

Pulse prices are also remaining firm for human consumption markets.  As with wheat, wet weather in Australia is causing concern for short-term availability.  Feed markets are under some pressure, with buyers absent in the short term, either through having purchased sufficient volumes or due to a lack of haulage making any further buying challenging.

Grain Market Commentary

Everything grain marketing is focused on new crop by this time of the year, even the remains of the old crop.  However, this year there is a problem.  Without knowledge of a Brexit outcome, exporters have no idea what they can afford to pay, not knowing whether there will be any kind of trade deal meaning a transition to Brexit and therefore whether they will have trade tariffs to pay to send grain to the EU-27 next year or not.  Furthermore, importers are in the same position.  Trades for the new crop are just not taking place, at least not until after Halloween.  A likely wheat surplus for the UK this coming year is compounding the problem.

The domestic marketplace is far less impacted by Brexit and theoretically not at all, however, the traded tonnes are those that set domestic prices.  Buyers at the grain processing and milling firms are dealing with this mainly by carrying-on as normal – all their competitors are in the same position, and unless any take any speculative positions, they will all experience the same price shifts simultaneously.

The weakening of Sterling as a result of political uncertainty has given a small boost to grain prices.  Barley prices have lifted in recent days as well as wheat, albeit by less than the rise of wheat prices.  This might seem a worse outcome for barley, but the potential barley surplus and uncertainty over the export of the crop from November might actually mean this is a good opportunity to sell.

The weak Pound has boosted the oilseed rape price in Sterling terms during May.  Oilseed rape does not have a trade tariff on it, so the complications from Brexit are less significant.  However, the US government has announced substantial support in terms of additional grants for soybean growers in the USA, in a bid to compensate them for the US-Chino trade spat that they have become embroiled in.  This does not seem to have had a major impact on EU oilseeds as yet.  One might assume a high global oilseed crop this year, considering the Brazilians have also been producing lots of soybeans to steal the US business to China; it all has to go somewhere.

Beans do have trade tariffs, but only small ones.  The new crop is in very good condition at the moment, a rather different situation to their final condition last harvest.  Again, it is new crop that the markets are focused on, and currently, other proteins such as rape meal and soybeans are comparatively cheaper than pulses so their incorporation into feed rations is likely to be relatively small.

In the field, growing crops are looking good throughout the UK, that is with the exception of oilseed rape.  Grains and pulses are growing well, and reports of serious disease issues are rare.

Grain Price Spring Volatility

The £16 per tonne difference in price between old crop and new crop wheat will eventually close.  Either old crop prices will fall or new crop prices rise.  There is currently not much happening to suggest a major increase in new crop values (and prices tend to drift downwards on the lack of new market information). But this time of year tends to see grain market volatility increase slightly.  This is for several reasons.

  • Firstly, the limited tonnages of old crop grain at the end of a marketing season have to match up with demand, and any surpluses, or even more so, shortages, could see prices shift considerably.
  • Secondly, the winter crops that have been lying dormant around the world emerge from their hibernation and agronomists get to see how well (or not) the forthcoming crop has coped with the cold.
  • More importantly though, a quarter of the world’s wheat and almost all the maize are only now being planted, meaning that over the course of this month, the total wheat area for the Northern Hemisphere (which accounts for 80% of cereals) will be established.
  • Weather conditions at this time of year affect crop growth considerably.  However the forecasts, particularly concerning large grain-producing regions such as the US Prairies tend to affect the traders more.  One forecast of rain and the markets swing one way, and another forecast for drought and they swing the other.
  • Finally, whilst the International Grains Council started suggesting its global crop area thoughts for 2019 last month, and the US Department of Agriculture posted some thoughts along the same vein, April is the first month that the new crop is analysed in any real depth by global grain analysts.  This alone causes market shifts as market traders look carefully at these reports.

Cereal farmers will have relatively little grain left unsold by now and will be thinking more about the new crop.  It is important to keep a focus on the underlying market fundamentals when marketing grain in the spring rather than respond ‘knee-jerk’ style to daily announcements and short-term movements.

Arable Market Commentary

New Crop

In terms of growing conditions, little could be more extreme than the temperatures recorded this month compared to last February.  In the February 2018 bulletin we cited the ‘Beast from the East’ delaying drilling.  This year, spring drilling is well ahead of normal with almost 25% of spring barley already in the ground.  A word of warning though; early drilled spring crops are not always the highest yielding, and there is time yet for very cold weather.  We reserve any judgement on harvest yield potential.

The USDA makes its first prediction of US wheat area every February, this year suggesting decreased plantings, in a falling area trend.  Indeed, if correct, it would be smallest US wheat area for 110 years.  This identifies the changing demands for grains, shifting to maize, for pig and poultry feed, biofuels and indeed even human food.

The International Grains Council’s first expectations of the forthcoming 2019/20 year are for a rise in global wheat production, of about 1%, a similar magnitude to the annual rise in demand so no substantial changes in year-end stocks.  This seems to contradict the findings of the USDA, but theirs, of course is USA only.  An increase in coarse grain harvests are also foreseen by the IGC, with maize and barley both up about 1%.  This is in line with the rise in demand so is no more than trend demand.  Much of the coarse grain increases are predicted to occur in the USA and China; the two biggest grain producers, so a small proportional change in these countries will be noticed.  However, there are also rumours that China is considering rolling-out a major expansion to its bioethanol inclusion policy, which would have a considerable impact on feed grain demand in the coming few harvests.

Of course, much of these crops that have been forecast have not yet even been drilled; all maize, and soybeans are spring crops and Canadian, Russian and half of the US wheat is also spring varieties.  Therefore, these projections are statistical analyses coupled with a smattering of planting intention data, not hard evidence of plants sprouting from the ground yet.

Old Crop

In the EU wheat market, a gradual decline in values this month (making European grain cheap compared with American grain) led to Europe and Russia winning some large export contracts to Saudi Arabia, boosting the export figures and balancing the supply and demand books.

The demand for ruminant feed is currently slipping away as cattle venture into the fields and sheep have grass to eat; leaving a lack of demand for feed barley, which has fallen to a £25 per tonne discount beneath feed wheat (which is primarily fed to housed chickens).  Barley is being included at maximum rates in rations now for this reason.

Oilseed rape prices have taken a tumble, based on the arrival of a large vessel loaded with Canadian canola, and the reduction of the rapeseed crush volumes in the UK.  This time of year is often difficult for European rapeseed (and pulses) as harvests from the Southern Hemisphere become available and start putting pressure in markets.  The Old Crop pulse market is increasingly thin and new opportunities will become rarer now, despite a healthy premium over feed wheat for pulses.

January Combinable Crop Market Update

Last July, nearby and forward prices of UK wheat on the futures market converged to within £1 per tonne of each other at a spike of £157 per tonne; £15 per tonne higher than the market had been only 3 months earlier.  It looked like the start of a bull run.  Since then, the market has slipped back nearly £20 per tonne for old crop and about £14 for new crop.  Prices for harvest 2019 are somewhere between the two.  There is lots of talk of currency causing movements in the value of grains and other commodities, but, back in July, the pound was worth €1.13 (€1 = 88p) and today the exchange rate is the same.  In fact the Pound has been relatively steady at these levels of between 88p and 90p since September, and in a slightly larger range since last June.  Plus, the independent movement in futures positions clearly cannot be a function of currency as it would affect them both equally, but is therefore a series of grain fundamentals moving separately for each crop.  The movements, whilst adding up, have been gradual but consistent. Without much grain crop production news at this time of year and ample supplies to keep the consumers out of the news, price movements are often gentle and less noticeable. But it is still a £20/tonne fall since last summer.

A gentle but persistent underlying bearishness in the market is borne out by the UK futures.  This can possibly be explained by the chart below.  It shows how the USDA’s monthly expectation (forecast and then estimate) of the 2017 global wheat harvest has changed since the first estimate in May 2017.  Its estimate of global production has risen by 20 million tonnes to 757 million tonnes. Whilst this doesn’t sound particularly much, it is approaching a 3% increase in global output expectation; considerably more than the UK produces in total.  The USDA’s consumption figures have increased but by much less (6 million tonnes), meaning considerably more crop is now available than was initially thought.

USDA Monthly Global Wheat Production and Consumption Estimates – Harvest 2017

Whilst anything can happen, it does appear that downside currently exceeds upside in the wheat market. We are aware that any information that is reported on (including USDA statistics) is built into the market immediately meaning forecasting further moves is not possible from public information, but a heavy surplus is likely to slow any future bull runs.  Indeed, wheat has fallen more than barley this month, and the difference in some regions is now small.  We might see some feed consumers switching from barley into wheat.

Global soybean trade can be simplified as either a) from USA or Brazil to China or b) any other trade. Between them, the USA and Brazil account for 83% of global exports, and China alone accounts for 65% of imports.  Whilst exports in both countries have been rising, Brazil now outstrips the USA as the major soybean supplier for the world.  Indeed, China has been favouring Brazilian beans this year.  This is possibly a price issue, with the Brazilian Real weakening making them more competitive, but also as their protein is consistently higher.  China buys soybean, primarily for the meal, not the oil. We would generally expect a weakening of US prices to have a greater impact on EU oilseed (and pulse) values than Brazilian, being more closely connected to the EU marketplace, however, the overall balance between supply and demand is the ultimate arbiter of the base price for commodities.

Whether higher protein adds value in beans is a moot point: A recent seminar on pulses held in Peterborough, was told by a prominent pulse buyer that whilst higher proteins is preferable to lower proteins in beans when it comes to securing export outlets, protein levels do not attract higher payments and growers would not receive more.  In other words, the key in the UK when growing pulses is to go for yield, and not protein.  At least not until the buyer recognises it as preferable by way of price differentiation.

Arable Markets

In commenting on current grain markets, similar factors continue to prevail as the last couple of months and the market is still comparatively flat.  The November 2017 UK wheat futures contract, which ended on 23rd November, showed a total price variation over its total 2 years and 4 months of being open for trading of £32 per tonne.  For 94% of the time it traded within a tight £20 per tonne range of between £125 and £145.  There have been single weeks in previous years when markets have moved by £20 per tonne.

For old crop grains, the International Grains Council (IGC) has increased its estimate of 2017 harvested grain crop, increasing wheat by 1Mt and maize by 6Mt.  Wheat consumption also rises leaving no net change but maize consumption increases by 2Mt, meaning a small rise in stocks too.  We note that whilst half of all global grain stocks are in China, the rest of the world also has ample for now and consumers are not concerned about the whereabouts of their next purchase.

The Black Sea has been, and remains, more competitive for business to North Africa, and so exports from the EU have been slow so far this season, leading to reductions in export expectations and therefore higher carry-over predictions.  UK wheat exports have also been considerably slower than last year but with potentially less to export (higher consumption, far smaller opening stocks).

Early indications suggest the US winter wheat area is likely to be down yet again in 2018 and autumn crop establishment conditions are not great (it is too early to make yield judgements but planted areas and write-offs might have a small impact on cropsize).  A smaller US wheat area would mean the third consecutive area decline.  Also, it follows a massive switch away from wheat in the US last season and a halving of its area since it peaked in the early 1980’s as the chart shows. This can only be bullish for our new crop values but is also fueled by the fact that other countries are fulfilling the demand.

Soybean stocks at the end of the 2017/18 seasons are seen by the IGC as rising, by 2Mt, to 41Mt, largely from slippage in usage figures. Markets have been relatively quiet with little market movement (as per the grains). The next big opportunity for large price movements will probably be in the spring when the spring crop area is established (in the UK, EU and elsewhere).

UK malting barley premiums remain firm, especially for pre-Christmas, as sellers have dried up.  However, supply and demands remain tight for the season so opportunities for post-Christmas sales are still good. 

Demand for pulses is nearly over pre-Christmas and relatively quiet for the New Year too.  The Southern Hemisphere (Australia in particular) will be starting harvest soon into January so the UK will then have to focus in its competitive advantage of distance to the major markets of North Africa.

US WHEAT PLANTINGS: 1980 to 2017 – Source: USDA