Tag: barley

Crop Market Summary

The demand for bread and therefore milling wheat is high.  People eat chicken and eggs at home more than beef and lamb so the demand for feed wheat has also increased.  Old crop prices have benefited from the surge in short term demand, which farmers have benefited by selling into.  The fall of Sterling has given grain prices a considerable boost (see earlier article), and also made the UK wheat price competitive for exports, so new shipments have been sold into continental destinations this month.  New crop feed wheat hit contract highs.  Globally, wheat has also risen on news of the Chinese buying US wheat, and a considerable 240,000 tonnes in two shipments.  This is the first such deal in three years.

The consumption of alcohol (especially beer) out of the house has disappeared and people drink less beer at home (and alone) than when they are out.  And this is global.  Hence the malting barley premium is declining sharply.  The combinable crop price matrix is shifting because of (presumably) short term, sudden, changes in the way that people eat.

Crude oil has fallen by 60% to its lowest level since 2003 as the demand for travel falls.  The demand for biofuel has therefore disappeared too.  This has a greater impact on the vegetable oil market through bio-diesel than the ethanol market into cereals.  This has played a bearish factor in the oilseed rape market, meaning prices have not rallied on the fall in Sterling as much as the grains have done.

The pulse market has been relatively light, with reduced international business, partly because of the virus, but more because of the freshly harvested Australian bean crop that dominates business into North Africa at this time of year. Usually by Easter the UK bean market is more or less finished.

Grain merchants and other crop production businesses remain open as the food supply industry is classed as an essential business.

Planting Update

This is a short article this month.  A few bits and pieces of drilling have apparently been able to take place, on the slightly lighter and faster draining land, but really very little; probably not enough to match the amount of autumn drilled barley, oilseed rape and even wheat that, this month, has been officially written off by the farmer and his agronomist.

Some commentators in regions less affected by the heavy rain and the saturated soils are confused by the noise, expecting the flooded fields to be confined to small corners of fields, floodplains or pony paddocks.  There are consequently still people projecting wheat crops comfortably over 13 million tonnes and others sticking to sub-10 million.  Currently, our wheat area projection sits at about 1.6 million hectares, of which about 1.1 is probably planted.  This would be at about the level of the 2013 crop and before that not seen since 1981.  With a lower than usual yield, this may give a 11.5 to 12 million tonne crop.

Some seed merchants have reported fast sales of all spring crops (possibly with the exception of oats), and for some crops, pulses in particular, sales have been stellar.  Indeed, it is possible that some farms have overbought, with a view to either cancel their spring seed order or keep their winter seed through until next autumn.  It has been a good year for seed merchants but next year might not be.

Combinable Crop Markets

This time last year, we showed the chart below with the faded bars.  It demonstrated wheat was priced with a typical carry as it goes through the year; with the monthly rise in value the longer you keep it to account for the costs of storage. It also showed the usual drops in value each year when the new crop physically comes into the marketplace.

The dark blue bars show this year’s equivalent set of futures prices, and how there is a full carry from now all the way through to May 2021.  In other words there is no drop in price when the flush of new crop becomes available this summer.  It demonstrates that the market understands that there might not be much harvest to account for the flush.  Only when we get to the summer of next year, do we see wheat futures prices start to fall.

UK Wheat Futures Price – source AHDB

Old crop wheat is currently cheaper than new crop, but is still dearer than equivalent continental values meaning they are too expensive to secure exports to EU destinations.  It also suggests that, if the supply situation changes in coming weeks, the market might fall considerably.  This may be prompted if there are enough dry conditions for the many farmers still sitting on their winter wheat seed, some varieties of which could still be planted well into February, to get some more drillings done.  Globally, wheat prices are strong, sitting at levels not seen at all in 2019.  Some with a crop already safely growing, will see this as an opportunity to sell some new crop forward now.

Higher wheat prices have boosted feed barley values this month too.  This has been coupled with some useful exports, particularly from old crop.  New crop barley could be a big one this year, with large volumes of spring barley seed committed or delivered.  The markets (both wheat and barley) will be sensitive to both the ongoing weather throughout the spring and also the updates on drilling.  We do not expect a million hectares of spring barley to be drilled, but it largely depends on how the weather turns out in coming weeks.  Wherever possible, many growers are still very focussed on getting their wheat in the ground.  It is difficult selling even the feed base forward this year as currently, many farmers are not even sure what they will harvest.

It is emerging that large crops of soybean from the southern Hemisphere, Brazil in particular, are expected this coming year, and other regions such as Ukraine are looking to grow more oilseed rape. This, coupled with trade talks between the Chinese and Americans, has seen oilseed rape lose some value.

Old crop pulses have been rising in price this month, partly because of demand for the protein, but also, it is thought, as growers hold tonnages back for potentially drilling.  Winter beans can be drilled relatively late, and of course, spring beans might also play an important role in the 2020 rotation.  Many seed merchants have sold out of bean seed and potentially, we could have the largest pulse cropped area the UK has recorded for many years.  It takes a long time to multiply beans up (compared with cereals and especially oilseed rape), hence the high proportion of home saved seed.

Arable Markets

Overall Comment

Whilst in some counties over the last week the weather has been harsh, over the country it appears overall, December has so far been considerably ‘less wet’ than the previous 3 months. But with soils already saturated it does not take much to keep the land impassable. Now the crops are mostly dormant meaning nothing is transpiring the water away, and minimal evaporation is taking place either as temperatures are too low with high humidity. In other words, a millimetre of rain here and there has been topping up the already sodden soils. Cold dry frosts have also been scarce this autumn, meaning that grain conditioning in store has been difficult. Some samples, particularly of barley have been losing premiums because of infestations. Managing grain quality will become increasingly difficult this winter.

Wheat

Nevertheless, the AHDB has reported they consider the winter wheat planted area has now risen to about 60 of intended plantings, suggesting progress of about 5% since the last of these bulletins was published. Clearly, at this rate, and if weather conditions do not change, there will still be about 30% of the planned winter wheat area undrilled at the end of February; about the end of the window available for drilling most of the varieties currently sat in bags in farm barns around the country.

UK grain traders have had a challenging time this season, unable to book grain exports past the official Brexit dates. For a year with a large crop to sell, this has affected market prices. Perhaps some clarity in the New Year will facilitate the rest of the marketing campaign.

Barley

Old crop markets are asleep already in preparation for the Christmas break. Its not even planted yet, but the prices for the 2020 crop have not been great, with expectations of very large UK and EU crops. Few buyers are buying much new crop yet, as prices are so bearish. Certainty regarding the EU departure will support the buying confidence.  Seed traders have been gathering what spring barley tonnages they can and, between them, it appears there is enough available for in excess of a million hectares to go in the ground, as soon as conditions allow. This would be the highest spring barley crop since 1988, and the largest total barley crop since 1990; that is, assuming it is dry enough to drill by then.

Oilseed Rape

Global demand for vegetable oils is strong. The Chinese still demand vast tonnages of soybeans, despite millions of its pigs, who et the meal) have been slaughtered because of African Swine Fever. This might shift the balance of demand between oil and meal which would favour crops like oilseed rape that have a higher oil content. Certainly, oilseed rape has done quite well over the last month, regardless of the overall movements of sterling.

Pulses

Pulses trade quickly in the first half of a marketing year, then slow down for the second half. The export market for pulses for this season is quickly reaching that point, partly as the Australian crop will be competing strongly come January, and also because of customs clearance deadlines in North Africa.

 

 

October Arable Commentary

This time last year, we discussed how well the planted crops had established and were growing.  This year, over much of the UK, there is little to talk about as many farms have done very little drilling at all.  Official data reports that England averaged 107.5 mm rainfall in September.  This reading is far lower than that recorded in some people’s rain gauges; the topic of conversation that has trumped the crop yield discussion in pubs in all arable parts of the country of late.  However, the last time the official September rainfall eclipsed 100mm was in 2000.  That year was even wetter therefore than infamous 2012 year, which, whilst it had been wet on and off since April, and became very wet in October to December, had a dryish September.  Notably, the average September rainfall across all of England is 64mm, just over half of what the country has received this season.  Wales has just had its wettest September since 1981 but Scotland had the driest September in four years this year.  October seems to have been similar.

Drilling therefore is considerably behind schedule, with several people cancelling winter varieties in favour of either fallowing or a determination to drill in the spring.  Others have adopted a wait-and-see approach with late-planted winter wheats still an option.  Any rotation changes driven by the weather will add to existing trends.  This is particularly the case with oilseed rape where the fall in planted area is expected to continue for harvest 2020.  The 2019 crop showed the smallest crop output since 2004, and the smallest planted oilseed rape area since 2002 (at which point there was industrial oilseed rape on set-aside land).

UK wheat prices have also remained uninspiring this month.  Since the UK nearby wheat futures contract slipped below the Chicago wheat price (Soft Red Winter) in June, it has shown no inclination to swap back, instead following a relatively close £15 per tonne premium over Chicago number 2 maize. Number 2 maize is the cheapest, commodity-level maize that is used for animal feed, starch production and other industrial uses, so we would expect our wheat to be worth a bit more than that!

Malting barley prices have risen slightly this month, but looking forward, if this year is going to be anything like other very wet autumns, we could have high areas of spring barley planted, meaning a thumping big pile of malting barley so very small premiums next harvest.  Growers should consider their marketing options such as minimum prices, contracts and so on.

Whenever Sterling has risen in the month, we have seen pulse prices soften as would be expected.  It continues to remind us that the marginal tonne of a commodity is the one that sets the local prices.  We have had three years of higher grain prices because of a weak currency, but if we see a Brexit Deal happen this might change back.

Combinable Crop Situation

Oilseed rape production in the EU has not been so low since the EU the EU expanded to 27  Member States.  The introduction of Croatia in 2013 had minimal impact on the OSR supply and demand tables, but Bulgaria and particularly Romania, which joined in 2007, account for about as much production as the UK does.  The crop this year is thought (for example by Coceral) to be about 12% to 13% lower than last year, and as much as 29% lower than the highest production year of 2014.  In fact, since then, four out of the five years have incurred declines in OSR crop size.

This means that this year, the EU (including the UK in this description) will be importing oilseed rape from elsewhere.  Some have suggested 6 million tonnes of will be required.  At the same time, regulations on importing biodiesel produced from palm oil is becoming more expensive with duties rising.  Additionally, the rise of crude oil prices following the attacks on Saudi refineries have also led to rises in vegetable oil markets.  These factors have come together to support oilseed rape prices in recent weeks on European markets.

In the meantime, Sterling has gaining strength by 5% against the Euro in the light of rising expectations of a Brexit deal since early August.  This has wiped out any gains in the UK OSR markets. This (relatively modest) currency shift demonstrates just how dominant the value of the Pound is on agricultural prices.  We have no influence on the value of Sterling and minimal ability to predict accurately.

Taking this logic a little further, it follows that as soon as a decision on the type of Brexit is reached, whether Deal, No Deal or even no-Brexit, the impact on the value of our currency will almost inevitably be instant and dramatic; probably far more than 5% in either direction, depending on outcome.  In the short term, the profitability of cereal farming post Brexit-decision will be led by currency shifts.  Any other factors might be dwarfed by this one thing.

Exporters have been working round the clock to export as much wheat and barley from the UK’s exportable surplus since harvest.  Their deadline is 31st October as they do not know what the tariff rates will be after then.  Conveniently, there has been considerable buying interest from many of the large cereal buyers, mainly in North Africa including Algeria, Tunisia and Egypt.  These countries don’t buy from the UK, but they have occupied other exporters’ minds whilst UK traders have focused on our traditional Iberian markets.  This has helped UK grain prices to hold up, in the face of stronger Pound (see above).  Yet the EU wheat crop is considerably higher than last year and the US cereals prices (especially maize) have been falling this month.  The urgency of exporters to get stocks off farms and onto boats has supported prices.

Bean prices are also holding up well.  The urgency to export the (considerable) surplus is smaller, both as much of the bean export goes outside the EU anyway, and also as the tariff rate to the EU is far smaller.  In any case, the trade has struggled this year to find much that is of food grade, most ending up in feed bins.

Arable Roundup

UK Harvest

Until the last week of August, harvest was a headache for many farmers.  Many areas had four inches of rain in June, another four in July and about 2.5 in August, meaning the ground was soft.  Intermittent showers meant progress was slow.  However, the last few days have been all-systems go, facilitating a catch-up.  The warm, dry, weather has also meant producers have been far less dependent on the drier than at the start of the harvest.

With a majority of cereals now cut, yields have been good to excellent overall.  Winter barley has yielded higher than average with plenty of our clients reporting 8 to 8.5 tonnes per hectare (3.25-3.5t per acre).  Wheat has also been very good.  Strong loam soils that have been cared for with ample organic matter over the years and heavy land have achieved in excess of 11 tonnes per hectare (4½ t per acre) – and not just in isolated cases.  Bushel weights of 80+ have been commonplace too, but Hagberg readings have not been as good following the intermittent rain-shine weather.  Lighter soils and those with less organic matter have been affected by the dry weather in May and early June.  However, yields are still good so plenty of light land farmers are recording above average results.  Oats are still in the field and losing colour so possibly less attractive for milling.

OSR has been variable because a fair area had larvae feeding on plants in spring which led to poor podding in crops.  That led to yields being moderate at best, many reporting around the 3-3.3 tonnes per Ha (1.2-1.3t per acre).

Beans have been at high risk of bleaching following the showery weather of the previous few weeks.  Beans discolour and therefore lose value easily and quickly.  Those that have managed to harvest beetle-free and coloured beans could expect a £25 to £30 premium over feed beans but the large amount of feed means this base price is not great.

European Harvest

Cereals harvests are completed in most part of the EU, including France and further South.  They are near completion in Northern Germany and Poland, and well underway in Eire, Denmark, Scandinavia and Baltic States.  Again, yields have been bumper.  For soft wheat, Strategie Grains, an analyst company forecast European production at 143 Mt, a considerable 12.3% increase on last year.  The wheat area is up by ¾ million hectares and yields are also above the 5-year average.

In France, the wheat crop will be high at 38 to 40 million tonnes depending on whom you ask.  Only one Department has recorded lower than average yields and proteins are high.  The German and Polish crops are also good.  Even outside the EU, the Ukrainians have also had high yields, and have already started their export campaign in earnest, with higher sales than last year and a target of 21 million tonnes, which is 5.5 million more than last year.

The EU is likely to have cut over 60 million tonnes of barley this year, mostly winters.  France will have seen a rise in springs because of oilseed rape problems.

Prices

This means there will be a large EU crop this year and nearby neighbours also providing surpluses. Achieving exports from the UK might prove tricky.  This explains why futures prices have hit contract lows in all positions in the last couple of weeks; we have lots to sell, everybody else who exports does too and those who import also have more grain than usual.  It is clear what this might mean to prices, especially when the possibility of having tariffs looms over the UK crops.  It is perhaps therefore no surprise that wheat values have fallen by £20 since June and £10 per tonne solely in August.

The weakening Pound has done little to retain any kind of value in commodities, in fact, comparing the UK Nearby wheat futures contract prices with the comparable French, a gap has opened up of about £10 per tonne more than usual. This might be the Brexit effect.

UK Grain Harvest and Marketing Commentary

UK Combinable Crop Harvest – What Should We Expect?

The harvest is in its early stages; it started a little earlier than usual and for some, even earlier than last year.  Considerable activity until Thursday last week was seen with barley, oilseed rape and even some wheat reaching the barns, but the storms over the weekend have halted most harvesting. We expect a picture of a stuck combine in Friday’s Farmers Weekly as usual!

For much of the UK though, the crops are in a good condition, especially the cereal combinable crops and early indications suggest good yields (albeit early). The jury is still out for oilseed rape, although, whilst we have heard a lot about crop write offs and poor condition crops, there are still plenty of farmers sitting quietly on what looks like a full field of seeds. It is difficult to tell before the combine has been through. The storm over the weekend has flattened some crops at a very late stage which might cause some harvesting problems.

In much of Europe, particularly, France and Germany, the two main grain producing countries, the recent spells of very high temperatures have apparently taken a toll on the ripening crops. However, the crop tonnages forecast remain comfortably above the very poor yields harvested last year.

OSR

Oilseed rape harvest started before the storm.  Following the last couple of very dry days of last week, a few farmers had been harvesting very early in the day or trying to wet the seeds to a level that would be accepted by merchants. To recap, the standard FOSFA contract for oilseed rape is for 9% moisture.  Oilseed rape is not accepted at moisture levels above 10% (or you would incur drying charges).  You gain 1% in price for every 1% the moisture decreases to 6%.  Below that point, it becomes difficult for a crusher to extract oils so is rejected. If you are testing the seed and the moisture levels are heading down towards 6%, advice is to stop harvesting, and restart early in the morning (better than late in the evening because the moisture may have reached the seed rather than just the pod). Wetting oilseed rape is not recommended, as it is often uneven, rather, mix it with some wetter seed to make an average moisture within the tight band.

 Cereals

The barley harvest too is under way. It is early days and the better yields are always reported first so we reserve our judgement for a month. Barley harvest in France is a quarter through and moving northwards quickly. The very first wheat crops are starting to be cut now too, but it is too early to make any useful comments about it.  More next month.

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, with considerably better results than the poor yields from last year. The Black Sea region and Ukraine are also harvesting, with yields up on last season, although the Russian harvest is smaller than initially projected.  North America, the main breadbasket of the grain exporting world is wading through its winter wheat harvest, now being three quarters completed and in China, another large crop is being gathered.

Within a month, the analysts will start publishing their expectations of crop sizes, based not on planted area and trend yields, but more on actual reports coming in from the fields.

This all sounds rather bearish, and often is for a short period, whilst buyers identify what is available, in terms of quality, quantity and location. The calculators then come out and the premiums are established. We note that as the population continues to rise, the overall demand for grains is also increasing every year, and so to simply stand still, the world needs to harvest a record crop each year.

Marketing

When it comes to marketing our combinable crops this year, we should be more focused on the impacts of a Boris Brexit than the actual marketplace itself. Yes, we acknowledge we made similar comments following last season’s harvest and nothing happened, but there is still a chance that Brexit will actually occur, and more importantly, that it might do so without a deal.

Those with combinable crops to sell are reminded that exporters are not able to book sales to the EU post-Brexit day, because they do not know what the price will be (tariffs or no tariffs), so grain long-holders (farmers) should consider the risks and benefits of holding grain unsold into the autumn. Bear in mind that oilseeds have no tariffs so should not be affected by them, beans have only a low tariff and are mostly exported to non-EU destinations so should be similarly unaffected. However, the cereals are potentially holding a lot of value at the moment because the tariff structure protects them. We will probably have a surplus of feed wheat and oats this year so it might be prudent to pass the risk of these crops elsewhere sooner rather than later (i.e. selling them).

Global Grain Stocks

According to those who keep track of such numbers (in particular the US Department of Agriculture and the International Grains Council) the world has plenty of grain in store.  At 640 million tonnes of year-end wheat and feed grains, that is nearly as much as the world has ever had.  That sounds rather bearish for prices.  However, there are two points worthy of note.

The first point to consider is where those stores are being held.  In essence it matters not whether grain is in exporter’s barns or importers silos; it is all available to supply consumers.  But if something is thought likely to remain in store for a considerable time, then its impact becomes significant only at the time of its sale, not whilst it is squirreled away in a barn.  There are more consumers in China than in any other country in the world.  China therefore gets through more grains than any other country; in fact, consuming about half as much grain again than the Americans, the second most hungry nation.  China also produces more grain than any other country, this time by a margin of about 20% over its nearest rival, again the USA.  China has not historically been a large player in the global market apart from topping up their wheat reserves from time to time.  However, it has, in recent years, started importing various grains, including barley and maize as well as more tropical crops like sorghum.  And, as it happens, over half of that 640 million tonnes of grain carry-over stock is held in this one country.  That is equivalent to nearly 10 months supply.  One would assume it will be used one day, as long as it is being properly stored, but it also means that whilst it is locked up like that, the rest of the world has to operate as if it wasn’t there.  Clearly if it is sold and Chinese stocks fall one day, as has happened in the past, it could lead to low grain prices for some time, but in the meantime, stocks, excluding those in China are relatively tight at 300 million tonnes.

The chart demonstrates the grain stocks held in China compared with the rest of the world, and the amount eaten in China compared with the rest of the world. it demonstrates they are holding quite a bit.

Grain Stock and Consumption Globally; China and the rest.

The second point is, we are consuming more grain than we have ever done so as well.  So as a proportion of consumption, 300 million tonnes is not that much.  Of wheat, the closing stocks is about 23% of consumption, almost a quarter of a year, but of feed grains, its 13%, about 6 weeks.  This is about equivalent to ‘pipeline stock’ requirements in the UK and many other countries as the end of the season is June and harvest begins in August.  All of a sudden, its starting to sound a little more bullish.

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.