Tag: barley

The Global Grain Market

The UK wheat market may have risen in a straight line since August, but prices elsewhere have been up then down.  The spread between UK and US comparable prices has grown from about £13 per tonne in mid-October to almost £30 per tonne now.  A price differential like this is unusual and not likely to last long.  UK wheat (standard UK wheat is a feed specification) will not be cost effective to export.  Not a problem I hear you say as we don’t have a surplus, but on the basis that a million tonnes of high protein hard wheat from North America is imported every year, that shortage closes quite a bit.  Exporters have the contacts, skills and infrastructure to become importers and whilst it will be slower than their traditional exports, for £30 per tonne, they will find a way for sure.  This suggests that unless the world price is about to rise too (not much evidence of that) then the UK wheat values are teetering on a price spike.  Clearly we could be wrong, but selling feed wheat at not far short of £200 per tonne is not a bad price to be wrong at.  For new crop, UK wheat is at a discount to Chicago prices, but the gap is closing.

There are lots of reports of drilling progress around the world, updates of old crop harvest tonnages and weather conditions, each one, pushing global prices up and down.  The fall of the EU exportable surplus is concerning UK processors, not knowing where their balance will come from, and indeed yet, what the tariff might be come 1 January.

China has been busy buying up lots of French malting barley, and the European malting market has been active, with some good prices. In the UK, it is quieter, with the Brexit tariff uncertainty interfering with trade decisions. Barley and malt prices for the 2021 crop are already looking more promising than old crop values, as we would have expected.

 

UK Arable Situation

Whilst the barn is not as full as most years, because of low cropped areas and poor yields, those whose wheat remains unsold have been making money from it.  In fact a tonne of wheat has risen by £25 per tonne since harvest.  This means,  for an average yielding hectare of a meagre 7.2 tonnes this year, a rise of approaching £200 per hectare.  That sounds easy, but of course, a large percentage of the wheat never got drilled, and probably, a greater percentage of it than usual was forward sold.  Nevertheless, it is some comfort for those holding stocks.  The AHDB’s Cereal Quality survey confirms the proportion of quality wheat (full specification) is lower than usual too at 32% compared with the 5-year average of 37%.

Feed barley remains at a hefty discount to feed wheat of over £40 per tonne, with lots sloshing around the system.  Not only did the total barley area come close to the wheat area, but the malting varieties in East Anglia averaged high nitrogen levels (1.89%), slightly above the standard for export brewing (1.85%) meaning much is feed barley grade.  Nitrogens were lower in Scotland.  French malting barley is excellent this year.

This time last year, we reported how the British drilling season had halted with only half the winter crop in the ground, many farmers having shut up shop till spring, and many with serious concerns about flea beetle in their oilseed rape.  Conditions have been substantially better this year, but still not great.  Whilst not as wet as 2019, rain has caused several disruptions and drilling is a few percentage points behind where farmers would ideally like to be.  Some establishment has been slow because of waterlogged soils, especially in the heavier land areas.

We also mentioned some farmers had publicly stated they would not grow oilseed rape again.  This does appear to have been carried out, with perhaps even less OSR planted than was harvested in 2020 (quite a drop, because as much as a quarter was written off before harvest).  Establishment is quite good, but on the basis that every year now, some will be lost, we could have an OSR harvest smaller than we have had since the 1980’s.  In terms of planted area, it will remain larger than oats, pulses and maize, but OSR is of less importance in the UK rotation now than just a few years ago.  Pulses appear to be compensating for the lost area, but only partially, with other changes such as increases in second wheats and oats (particularly spring).

Pulses are have a small surge in popularity, both on the back of the point made in the previous paragraph, but also as new crop prices are strong, especially peas.  Both Blues and Marrowfats are offering excellent prices for those who can get a contract and a half decent clean yield at circa £270 and £320 per tonne respectively.  Old crop premiums are not as good though.

Grain Market Update

The UK had a record-breaking cereals harvest in 2019.  No records have been broken this year, perhaps apart from the percentage of oilseed rape written off or the percentage decline in wheat crop from one year to the next!

According to provisional Defra estimates, the total wheat and barley crop was over 18.5 million tonnes – nearly 6 million lower than last year, and all of that decline was because of less wheat (the fall in winter barley was more than compensated for by the rise in spring barley).

The chart shows the main combinable crop areas for the UK for a decade. Under ‘normal’ conditions, crop areas vary slightly from one year to another according to shifting market requirements and other economic influences as well as perhaps a small weather effect.  About once every 7 or 8 years, we see greater shifts in cropping because of inclement weather covering large proportions of the country.  That is not to say we can predict when the next weather event will be of course.

The change in the crop rotation was clearly dramatic, and the amount of resultant crops for marketing is equally unusual.  Whilst farms have a different make-up of the crops they want to sell, the market demands are much the same.  There is a mis-match, which will drive imports and exports to balance supply and demand and is also causing sharp price movements.   Prices for wheat have spiked in recent weeks, having risen by over £20 per tonne for since harvest.  The unusual market also explains why barley has not followed suit as it often does, instead, a price spread over £40 has emerged as evidenced in the graph below.

Demand for malting barley is slim, as Covid restrictions close pubs and bars throughout the country and beyond, reducing their already severely reduced requirement for beer.  The considerable pile of spring barley is finding ample buyers but for feed.  Prices have picked up a little but continue to trade at considerable discounts to wheat in many parts of the world. The new crop price spread is smaller but still £15 to £20 per tonne.  The figure below shows delivered feed wheat and barley prices in UK and illustrates the growing spread between the two crops.

The oilseed rape market for anybody who has any to sell, is thin and, as usual, is led not by OSR, but the soy and palm oil markets.  The lack of OSR in this country has very little impact on prices.  Global vegetable oils are highly susceptible to currency markets and political moves, particularly regarding the relationship between the US and China.  Brexit has little impact on the oilseeds markets as they have no tariffs.  Brexit negotiations affect these markets more because the strength of Sterling changes according to trade deal news.

The pulse trade is small at the moment having become slightly overpriced to other protein markets.  Overall bean quality is not great this year, lowering the overall crop value.

 

Grain Market Post Harvest Update

The combinable crop harvest is all but finished; the combine harvester has returned to its shelter where it spends over 90% of its time.  The few days of work it does is critical but inevitably hugely expensive.  It is a shame there is not a cheaper way to get crops threshed and off the field.

Wheat prices for 2020 harvest have shot up in August and September, from a recent low of £161 per tonne to today’s high of £182 per tonne (November 2020 Futures position).  Publications from the US Department of Agriculture have been showing an increasing global wheat crop size, bearish for wheat prices, but a larger decrease in maize production.  This is the underlying fundamental affecting the base of all grain prices.  Despite the recent reduction in forecasts, output is still 50 million tonnes higher than last year, so the market will not be struggling to source grain, suggesting that unless the local shortage is the main driver, the price spike could be short lived.

This sort of price has not been seen for feed wheat for a couple of years when it reached £193 per tonne for November on the Futures.  Consider however, that it was only above today’s level for a month and the same could happen again.  Once the feed compounders start switching to feed barley which is trading at a phenomenal £40 per tonne discount, then it will generate a cap in the market.  As far as the calorific content of the grain is concerned, barley calculates at about 9 to 10% less than wheat, meaning its proportional value to wheat at £180 should be about £160 per tonne.

The large discount for barley probably exceeds most predictions, but the wheat-barley spread was always likely to have grown this season, with the large barley crop harvested and small wheat crop.  We have also seen a poor quality barley harvest.  Whilst there will be enough malting barley for making malt for the beleaguered brewers, most of the surplus cannot be shipped as malting, so instead finds its way into the considerable feed barley pile.  Scotland is the odd one out and had a good harvest with ample high quality, low nitrogen malting barley, suitable for the malting sector and for shipping down to England.

Is there more barley than wheat?  Well, no, but the demand for wheat is higher than for barley (pigs and poultry eat mostly wheat), the demand for feed barley is limited (sheep and cattle do not eat so much grains) and our export outlets also better developed.  The UK will be importing considerably more wheat than it exports this season, and that will cause interesting logistical issues as our ports are not so well adapted at importing than exporting grains.

Overall oats appear to have harvested in reasonable condition.  Pulses on the contrary have a high percentage of insect damage.

The last fortnight of dry conditions has facilitated a neat end to what began as a tricky harvest period.  It is currently raining hard outside my window, which is now a comforting sight for many who were thinking a drop of rain will start the drilled seeds growing.

Harvest Progress & Autumn Plantings

Harvest Progress

Normally at this time of year, the lion’s share of harvest is completed.  But with intermittent rain preventing significant progress in many parts and a considerable proportion of crops being spring sown, there is still ample to do.  A roundup of the harvest so fr is set out below.

Rather inevitably, it has been uneven, more so than usual.  In parts of the South and East, where more winter crops were drilled, harvest has progressed the most, indeed some might have all-but finished.  Further into the Midlands, West, North and Scotland, it is only just starting, partly as rain has hampered progress, partly because there is more spring cropping here.  Growers on lighter soils appear to have experienced greater yield reductions, suggesting the spring drought was more damaging to crops than the winter rains were; at least for those that made it through to harvest at all.  It’s an interesting turn of fortune with light-soil farms coming through the autumn drilling challenges well, but overall might have suffered greater yield reductions.

On the whole, many growers have a higher winter wheat yield than they thought likely back in February before the rain stopped, but many fields are patchy.  Most still agree yields will not quite reach the 5-year average.

Oilseed rape has been overwhelmingly poor and most opinions canvassed suggest a national yield of perhaps 2.5t per Ha will be as good as it gets.  The official yield will be affected by how much land farmers decided to re-classify as fallow or was re-drilled in the spring.  Plenty of farms drilled 120% of their farm this year; their failed OSR area eventually harvesting a crop of beans or spring oats.  Oats are looking well nationally, especially springs.  Windy rain might blow some yield from the ripe top heads.  Similarly, beans are looking good overall, especially spring beans.

This is a time for harvesters to consider the order of their harvesting. If multiple crops come ripe at once, not only should they consider the total value of the crop in the field, but the potential lost value from a 1-day delay in the field. For example, if beans and feed wheat are both ready to cut, the wheat might represent greater value per hectare, but the delay in cutting the beans might lose more value from discolouration than a similar delay in the wheat.

Autumn Drilling

So what are growers going to do this Autumn?  Most people are expecting a serious decline of OSR cropped area.  A lower drilled OSR area is very likely, but it is possible that for harvest 2021, the volume of OSR might actually increase.  We estimated a 25% write-off from this year’s OSR crop that did not reach harvest.  If next year, the percentage written off falls to a more typical 7%, then a decline in planted area from our estimate of 495,000 hectares in 2019 to a possible 410,000 this autumn would still leave more harvested winter OSR as the table shows.

Possible 2021 Oilseed Rape Area, ‘000 Ha

Many growers are removing oilseed rape entirely from their cropping.  Simply replacing it with another break crop may not solve the problem.  Other break crops such as pulses are available and offer soil and following-crop benefits too.  However, they might not demonstrate such high potential gross margins and could also become squashed in the rotation, affecting their long-term yields.  Some farmers are increasingly collaborating with nearby dairy or AD farmers to offer wholecrop rye, grass fields, as well as other cereals.  Interestingly, the harsh winter of 2012 led many cereal farmers to grow (spring) oats.  Their positive outcome meant that oat area has been higher than pre-2012 every year apart from one.  A surge in oat area this year too, might see something similar happen – depending on market demand.  Spring barley area has also been on an upwards trend with possibly a million hectares being harvested in the current year.  The gradual rise of spring crops can also be seen by a slow decline in winter cropping including wheat which, until 2008, topped 2 million hectares on a few occasions, and now averages 1.8 million.  Spring crops not only help tackle persistent grass weeds affordably, but are cheaper to grow and spread overheads at crunch times of the year.  Perhaps this year will accelerate this long-standing trend.

Arable Market and Harvest

UK Combinable Crop Harvest – What Should We Expect?

The harvest is in its early stages; for some the oilseed rape and barley is gathered, for others it has just been desiccated or is still ripening.  At this stage of harvest, without fail, commentators remark on the high variation of yield and quality.  The first fields always show variation in performance, and even in consistent years, the first fields present an unreliable bellwether for the rest of the harvest.  This is particularly as light southern soils often reach harvest before the heavier soils, and show greater yield variation, especially in years when drought has played a part in the year.  It would astound us if overall the combinable crop yields turned out high, especially the winter crops.  A good average yield of any of the main crops this year would either reset our expectations of what nature is able to do with plants in highly uncompromising conditions, or lead us to question the reliability of those calculating national estimates.

OSR

There will of course be some fields which just avoided being replaced in the spring, and harvest barely enough to justify the combine entering the field, but other fields will provide good crops.  Like all other crops, it is too early for any meaningful analysis.

Remember, the standard FOSFA contract for oilseed rape is for 9% moisture.  Oilseed rape is not accepted at moisture levels above 10% (or drying charges are incurred).  There is a gain of 1% in price for every 1% the moisture decreases to 6%.

Cereals

Some traders consider the winter barley harvest is 75% completed already (not the case round here by a long way – Ed).  Exports are taking place, both physical shipments and also orders.  UK feed barley is cheapest in Europe at the moment.  The demand for barley as animal feed (barley is generally for ruminants) seems to have dropped across some nations as people eat out less and therefore rely on white meats and vegetables in the home.  Demand for barley is thus down a bit.

Over the course of the last year, the price of wheat for this harvest has been gradually rising, albeit with considerable fluctuations from £140 to almost £170 per tonne on the futures market.  The prices for the 2021 harvest have remained highly range-bound between £150 and £155 per tonne.  The slowly declining UK and European crop size has been evident throughout the year, so prices have picked up, but so far of course, the crop for 2021 is unknown.

Globally

Most combinable cereals are grown in the Northern Hemisphere, so our harvest time will be more or less in line with most others.  Across the EU, harvest is quickly moving northwards.  In France and Germany, the two main grain producing countries, harvest is progressing in an average condition (not as well as last year).  The Russian wheat yield is reported as the smallest for at least 6 years, and smaller than initially projected.

Marketing

When it comes to marketing combinable crops this year, the focus may need to be more on the impacts of a Brexit than the actual marketplace itself.  Yes, we acknowledge similar comments were made following last season’s harvest and nothing happened, but Brexit has now occurred, and more importantly, a new trading situation will be implemented as of January next year.  This could possibly be trade with the EU without a trade deal.  These factors will affect the value of the marginal tonne (either exported or imported) which sets the price in the whole market.  We do not know the outcome yet, but farmers might consider this when planning on the date they fix the price of their grain (not necessarily the date of delivery).

Harvest 2020 Prospects

In the June 2019 edition of this Bulletin, we wrote “It never rains, it always pours!  By early June, some were concerned about the dry soil conditions, by the end, the concern was flooding.”  Some parts of Central England have felt the same about this year, with flash storms, bringing a month’s rain in a morning, onto previously dry land.  Damage to crops is thought minimal, if only because they are so thin!  The current sunshine will help them ripen with good quality and support bushel weights.

Since September last year, the November 2020 feed wheat futures price has lifted from £140 per tonne to over £175, and is currently at about £163 per tonne.  Since September, production concerns have reduced the expected crop size to what most people now expect to be considerably less than 10 million tonnes, and probably nearer to 9 million.

November 2021 wheat price has hardly moved out of the £150 to £155 per tonne range since September.  Clearly, there is so little information about how much there will be in 2021 yet, and what the change in demand might be, that the market does not move far unless currencies shift it.

Looking ahead at the possible, or likely supply and demand figures for wheat this year, we find a most unusual situation.  We are likely to enter the 2020/21 crop marketing year with considerable carry-over stock level according to the AHDB; higher than we have had for 30 years.  This is convenient, as the harvest projection outlined above is 5 million tonnes, or a third, down on the average crop size.  It means the UK will still need to import approaching 4 million tonnes of wheat with zero exports to balance the books and finish with sufficient ‘pipeline’ stocks – the stocks that are required to keep the mills running between the end of the marketing year (June) and the harvest.  This is an import level also not seen in a generation.  Not only has the UK not had a crop this small in that period, but also, since the last small crop (of 11.5 million tonnes in 2001), the UK has increased its level of wheat processing and consumption by 2 million tonnes.

UK Wheat Balance Sheet – source AHDB & ABC

The barley supply and demand outlook is less extreme.  Whilst the data is not as easy to interpret (two crops, less certainty about spring drilled area for example), using the lowest yields for both crops for a decade, and the crop area figures used by The Andersons Centre, we end up with a crop of 6.3 to 6.4 million tonnes.  This is considerably less than last year (8 million) but similar to 2018.  The rains last week will have provided a necessary boost to the growing crops in the UK, especially the springs, and now most grains will have sufficient moisture to see them to harvest.

The area of oilseed rape harvested is likely to be less than 400,000 hectares (including springs), making it the smallest area since 2002.  With some shocking looking crops in the ground, it is possible the total crop tonnage will be less than it was then.  Demand is lower though, as the economics of biodiesel is not worth turning the factories on, and with people not eating out (where food is generally fattier), the demand for oils for cooking has also fallen.  The market for pulses at this time of year is very quiet.  The recent rains will have been very well received by the growing crops, especially the spring drilled ones.

Arable Roundup

Everything grain marketing is focused on new crop by this time of the year, even the remains of the old crop respond to new crop market fundamentals.  So prices are moving based on the reports of crop development and of rain or sun. Hence, the markets at this time of year fluctuate far more than the well-being of the developing crop in the ground.  This volatility is of less importance in the spring as farmer selling tends to slow, as has been the case this year too.  Sales are even slower than normal, as a result of farmers trying to assess what they might have to sell.  Inevitably, for many this will be less come September than usual.

The US Department of Agriculture (USDA) in its May bulletin released figures showing ample wheat stocks, sending wheat prices down.  But the growing conditions around the world are not great at the moment.  The Russian new crop is suffering more than the UK from dry conditions and the crop expectation there has been reduced several times by the local analysts.  Across the EU, similarly, crop prospects are being trimmed back by dry soils from the UK across the Northern European belt.  At the time of writing. the outlook remains warm and dry.  With the UK wheat crop almost inevitably less than 10 million tonnes, and possibly considerably less, the London wheat futures have been gradually rising.  This has also been supported by a weaker currency.

Maize demand is starting to rise again with the resumption of an ethanol market in USA.  The same is happening for oilseed rape in the European markets with biodiesel demand restarting again.  This, coupled with the anticipation of oil guzzling restaurants reopening soon in the UK and Europe has led to higher oilseed rape prices.  Coupled with a very low OSR stock level in Europe gave the market a £10 per tonne boost.

The same factor has been positive for malting barley; hints that physically distanced bars might be able to reopen soon have supported the malting sector.  Furthermore, the dry soil conditions have pushed down the yield expectations for the large area of spring barley, trimming the potential total crop size.  Again, this holds true for Europe going right across the Black Sea regions.  Rain is needed badly in the whole of Europe.

The pulse market has reached its high point, having risen to levels that don’t calculate to export to buying destinations.  Trading is still quiet as Ramadan continues, but is in its last week.  There might be some new crop business thereafter, but probably only when prices come down slightly.

The release of the UK Government’s import tariff schedule this month explains the charges exporters will have to pay to send grain to the UK after the departure of the UK from the EU-Brexit Transition Period on 1 January 2021.  The tariffs  to import wheat and barley from third countries will be £79 per tonne and £77 per tonne respectively.  We normally export these crops but this year this may not be the case due to the low crop size.  Therefore these tariffs might have a market effect.  However, the import tariff for maize will be zero, suggesting maize can flood in from France and the Americas easily.  Thus maize is likely to be the feed-grain import of choice.  Furthermore, the high specification wheat will also not have a high tariff, suggesting the milling wheat demand will be sufficiently met.

Grain Crop Commentary

Old Crop

Technical changes:  Towards the end of the wheat marketing season, the impact of the fundamentals of grain supply and demand change, with some factors taking on greater impact, others less.  Attention then turns to new crop, and the fundamentals affecting it.  The increasing amount of information over the emerging new crop overtakes the dwindling and ageing information about the remaining old crop, of which little remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop wheat being traded, which is rising all the time surpasses the declining volumes traded of old crop.  This accelerates when the last old crop futures market expires as is the case now as we enter May.  Market fluidity also declines when futures markets are not available.  The technicalities of closing contracts held becomes a physical issue either having to physically deliver them or close the position.

Fundamental changes:  Grazing animals have gone to pasture, so feed grain requirements have fallen sharply as is often the case in spring.

Demand for bread rocketed in the first days of lockdown, fuelled largely by thoughtless panic-buying.  It has settled at about 115% of normal demand which millers and bakers are managing to meet.  Bagged flour was considered a secondary priority as it is less critical to consumers and slower to reach them, more wasteful than bakers baking bread, more expensive but less profitable to the supply chain, and the paper bags were in very short supply.  It is now coming back on-stream thanks to good communications throughout the supply chains.  Nabim published a map of available flour outlets.

Poultry consumption has risen, and produces have adjusted their feeding regimes to fit in with their new supply chain requirements as demand has varied (you can finish a broiler quicker or slower by changing diets).  Yet, feed wheat demand for ethanol production has stopped.

Russia and Ukraine have imposed grain export quotas, meaning prices may rise in May as these limits are hit.  The overall conclusion is that milling wheat is in demand but feed wheat less so.

In the barley market, maltsters are closing sites because demand for malt has collapsed as beer consumption at home and alone is lower than in pubs with mates.  Those brewers who have a market to sell to, do not have bottles to put beer in; barrels are not currently required.

The demand for oilseed has fallen as we eat less greasy take-aways and pizzas.  Any requirement for OSR for biodiesel has totally dried up.  Demand from the supermarkets is not being fully met either though, suggesting some issues with supply.  OPEC, the oil cartel has reduced daily crude oil production but only by 9.5 million barrels as day, when consumption has collapsed by 35 million. Nobody needs oil if we’re not moving about.

New Crop

Two months ago, few would have believed that many growers in the UK now require rain.  Some heavy soils are still coping well with large reserves in sub-soils but emerging spring crops require moisture at the soil’s surface and other lighter soils have become dry deeper down.  The dry area extends across Northern Europe to Ukraine.

New crop wheat prices are within a couple of Pounds of contact highs, set in March.  The reasons are a small crop in the ground, a wet winter and dry current conditions and some analyst’s comments suggesting the elevated bread consumption levels to continue post harvest.

The dry spell has enabled spring barley to be drilled in almost every spare corner of Britain.  Few fallow fields are now evident.  The potentially huge malting barley crop slowly grows, but no exports sales are being booked.  Other countries nearby also have lots of spring barley, and no beer drinkers.  The German Octoberfest, which attracts up to 6 million beer guzzlers has been cancelled this year. Malting quality barley will go as feed barley this year, clearly depressing the feed barley price too. The spread between barley and wheat could be considerable this autumn.

The price of beans has been falling as we enter Ramadan and the demand from our export homes slows.  A large spring bean crop is in need of a good watering.

Crop Area Projection Updates

At last the weather has turned out nice.  The rain has stopped, at least for now, but certainly for long enough for many farmers from Oxfordshire to Newcastle to complete (and in some cases even start) their drilling.  At the time of writing, many farmers are busily trying to get as much of their spring seed in the ground as possible.  Seed merchants are reporting low availability of late drilled seeds like maize and spring beans as a result of high demand.

Last month we published an article commenting on the second Early Bird survey that we support AHDB with.  This is the survey that assesses what has been planted and what growers intend to plant in the UK.  It included planting intentions which, at the time, left opportunity for winter wheat to be planted.  The rain did not stop in time for winter crops to be drilled and also may have curbed the spring drilling window for some growers leaving, we believe, a high chance of elevated fallow land and grass this year compared with normal. Our updated projections on crop areas look as follows:

If this projection is correct, it would leave potentially the lowest wheat area planted in the UK since 1978/79, and the highest spring barley area since 1987/88.  Some projections expect spring barley to exceed 1 million hectares but we are not convinced there is enough time for that to occur.  Oilseed rape area might end up being the lowest since 1988/89.  Even so, it still might be the highest we see again because the difficulties of growing the crop this year have been only partly because of the rain, and partly because of the flea beetle.  The fallow land area we have suggested here would be the highest level since set aside was mandatory back in 2007.  For 2020 autumn drilling and the 2021 harvest, we would expect a high proportion of farmers very keen to capitalise on the first wheat opportunity, possibly planting a little earlier than this year too.  Hold tight for a big wheat crop next year.