Tag: beans

UK Grain Market Update

UK grain markets have, unsurprisingly, followed the global direction in prices over the last month.  Wheat prices are higher, month-on-month, although wheat futures are lower than recent highs. Ex-farm feed wheat (spot) was quoted on 20th May at £326 per tonne, with a milling premium of £27 per tonne.

AHDB crop condition figures showed crops to be in good health through to the end of April.  Some 83% of winter wheat and 84% of winter barley rated as ‘good’ or ‘excellent’.  There has been rainfall across much of the UK in May.  However, rainfall in England was still behind the long-term average for the month, up to the week ending 17th May.

New crop UK feed wheat futures are also considerably higher than a month ago.  On 23rd May November-22 futures closed at £332.50 per tonne, up almost £45 per tonne on the month. Challenging conditions for crops in the US and EU are combining with ongoing uncertainty in the Black Sea region.

Prices for the 2023 crop have also risen.  November-23 feed wheat futures closed on 23rd May at just over £271 per tonne, up almost £20 per tonne on the month, but down from a high of £295 per tonne on 16th May.  The direction of the 2023 crop is uncertain at present, especially with limited futures trade.

Ex-farm feed barley prices also increased during the month, but only marginally.  The feed barley discount to feed wheat was quoted at almost £22 per tonne on 20 May, driven by a lack of interest from both buyers and sellers.

The price of oilseed rape has fallen in recent weeks, but nearby prices were still in excess of £819 per tonne, ex farm. Recent market reports highlight further falls in delivered prices for both harvest 2022 and 2023, with the latter now quoted at £580 per tonne delivered into Liverpool. This reflects Indonesia lifting its palm oil export ban.

Pulse prices had lagged behind the rises seen in other commodities.  However, feed bean values increased by £26 per tonne across the month, to £328 per tonne.  Premiums for new crop beans are squeezed.

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.

Arable Markets

The combinable crop harvest is mostly finished; what is probably the most expensive single capital item on the farm, the combine harvester, is back in its shed where it spends over 90% of its time.  The few days of work it does is critical, exciting but inevitably hugely expensive.

Wheat prices for 2021 crop have remained within their upward trend range, despite not recording an overall gain month from month. The current nearby futures feed wheat price of £194 is equal to that of this time last month, but between the two dates, prices have been £11/tonne lower. Currently, the present crop is teetering on contract highs, threatening to hit them this week. New crop (2022 harvest) is also at contract highs but prices have moved only £5/tonne in two months; its time will come.   Over 6 million tonnes of wheat have already been shipped from the EU, over 50% more than this time last year. There is not a 50% larger surplus, so this keen trade is pushing prices upwards, probably unsustainably. The US also has less wheat to ship this year by about 3 million tonnes. With China potentially buying European and US wheat, this is fuelling buying by speculators which is increasing the volatility in the market.

The current crop market is unsettled. Rumours suggest Russia is about to impose export taxes on its grains, making global supply tighter, The USDA is expecting less from Russia than initially predicted.  Dry weather in North America ahead of harvest also reduced crop yields by more than previous estimates in Canada, meaning the USDA publication also reduced production estimates for Canada. This has also fuelled the Oilseed rape prices, as Canada is the primary producer and exporter.

Barley prices are currently good, with brisk business occurring and a discount to wheat of only £7/tonne. A high quality harvest has given maltsters plenty of choice, and also picked up feed barley prices as less is available. Exports of spring barley into Europe are going well. Although some UK samples are high moisture which will keep them off boats.

Milling oats retain a £20/tonne premium over feed oats, sitting around £155/tonne spot for a clean sample.

Bean sales are picking up, but being a late harvested crop and a thin market, their trade is usually last to get going. Buying interest from Egypt, the largest grain buyer is high, although competition from the Baltic States is also present.

Combinable Crop Markets

The current UK wheat crop of an estimated 10.1 million tonnes is augmented this year by 1.2 million tonnes more imports than last year (over half a million more than usual) and higher carry-over stocks by about half a million tonnes.  The market has always priced the 2020 harvest crop higher than 2019 with a full carry (prices continue rising) from the end of the 2019 delivery period into the 2020 season.  For that reason, more people did not sell their old crop, but kept it into this year.  The opposite is already taking shape for 2021 crop, with a drop of over £40 per tonne for delivered wheat before harvest and shortly after.  Clearly there will be as little carry-over as possible.

Old crop wheat peaked this month at £214 per tonne, a great price to sell at.  However, only one person gets any business at the peak of the market, and that might have been a speculator, not a farmer and might have been a single lot (100 tonnes).  Prices have since declined to a still respectable £205 per tonne.  For those with any crop left unsold, selling at this level should be seriously considered.  As well as the reduced 2020 harvest, the continued weakness of Sterling is helping to buoy domestic prices.

Barley has also risen this month, but the price spread with feed wheat has remained close to or over £50 per tonne – an gap that is almost unheard of.  The new crop price spread is inevitably smaller with less barley and more wheat likely to be harvested.  Nevertheless, it is still between £15 and £20 per tonne, historically quite high.

Oilseed prices have also lifted with the rise of cereal prices worldwide, with OSR gaining £15 per tonne this month at one point.  Pulse prices are currently in a high position, compared with the range they tend to occupy, but arguably low compared with the current wheat values.  They are cheap in the current matrix, but there is a maximum inclusion rate in many compounders’ recipes meaning demand is capped regardless of price.  It will not be long before the generous Australian crop reaches a European harbour, then the value of local beans might fall a bit.

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.

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.