Tag: Cereals

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.

Arable Market Update

This time last year we took a look at the global grain supply and demand figures supplied by the International Grains Council (IGC).  The IGC is a politically independent body, so therefore theoretically has greater credibility than the US Department of Agriculture, the other major organisation that publishes global grain statistics.  The only issue is that the IGC has a secretariat of about 20 economists, and the USDA, some thousands, with people on the ground in every region of the world.  In any event, the figures from the two organisations are often relatively similar!

Twelve months ago, we discussed how wheat stocks were at their highest ever, in physical terms.  This year, running at 38 million tonnes (or 5%) less, the fundamentals are looking more positive for grain long-holders (farmers).  Furthermore, as can be seen from the change in pre-harvest expectations back in March 2018, to the last set of figures in November, the reality of what has been harvested in the 2018 year (and continues to be cut in the Southern Hemisphere) is lower than initial estimates; again, bullish for price.  The stocks to use ratio is lower than last year at 35.4%, but still considerably higher than the previous two years, suggesting accessing the right specification and location of wheat by consumers is unlikely to be challenging to buyers in the coming season.  A lower level of stocks held by exporters offers a glimmer of hope to those waiting for prices to rise, but it also suggests that importers have more stocks so might buy less.

 

17/18 figures forecast; 18/19 estimates   1 Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US    2 Argentina, Brazil, Ukraine, US    3 Argentina, Brazil, US

A look at the maize figures shows a different story; one of rising stocks and increasing availability.  This indicates that crops grown for energy alone (animal feed and bioethanol purposes primarily), are in relatively bounteous supply.  It suggests that the premium for milling varieties might benefit in the coming year.  However, in another interesting twist to the story, as stock levels are expected to be so much lower this year than for the last few (because of rising usage), the stock:usage ratio is seen falling.  Furthermore, the Egyptians (the world’s largest wheat importers) have been buying Russian wheat at prices above anything they have paid for 4 years.  This, coupled with a weakened Sterling because of recent political shenanigans, supports UK wheat prices.  We are still a long way from harvest 2019 (the IGC hasn’t even started to forecast supply and demand for it as yet).  There was a view that, barring major weather events, as we approached harvest 2019 there would be a downwards ‘correction’ in wheat prices as availability rose.  There is now perhaps a lesser chance of this happening. 

Barley markets are quiet ahead of Christmas, with few buyers or sellers, including no new export business. Premium samples of malting barley retain a good premium for those still unsold.

The oilseed marketplace has seen prices move a little more than grains this month, partly because of the Chinese/US politics which affect soy beans but also as the southern hemisphere crop is being harvested and some is already sold and loading for delivery into the EU.

November Arable Update

There have been few major fundamentals at play over the last month in the grain markets resulting in small fluctuations.  For example, the wheat futures price for May 2019 has fluctuated between £171 and £174.50 per tonne over the whole month, due to various minor factors. This is often the case in the build up to Christmas, when business from millers, maltsters, compounders and other grain users becomes settled, and there are no new surprises in terms of production.

The closure of the two bioethanol plants in the North of England over the last 2 months (reported on in October) means the market place has had to re-calculate the trade balance expectations. Going from a considerable net import requirement for wheat, to a situation of an exportable surplus, impacts UK grain prices and, importantly,  logistics. Not only did wheat prices fall, but also, the availability of grain haulage vehicles dramatically rose. The bioethanol plants had been taking large tonnages of grain meaning the haul was, on occasions over long distances, meaning less grain was delivered. Now, the marketplace for hauliers is much looser, and haulage companies have less chance to dictate terms or prices. Where some delivery slots were being missed when the plants were operational, these are now being delivered to.

Before the closure of the Southampton Hovis flour mill (also reported last month), the UK milling industry was, it transpires, considerably over capacity. It seems Hovis may be able to increase its milling volume in its remaining mill in Wellingborough, to still meet some of the contracts it was supplying from Southampton. Furthermore, other firms have some capacity to increase throughput without building any further mills, meeting any other surplus flour demand. We can conclude that the Hovis closure will not affect total UK bread-wheat consumption, whereas the bioethanol plants will affect feed wheat demand.

It is also still not clear whether the Ensus and Vivergo bioethanol plants are closed for good or just for a while. Neither statements were clear, although we understand that the Vivergo plant has taken its staff of 400 down to about 40.

TRADE

China has bought about 60,000 tonnes of French wheat. The volume sold is less relevant than the trade itself. Whilst the business takes some of the EU surplus out of the local marketplace, which is inevitably bullish for EU grains, this is the first Chinese business for EU grains for apparently as much as 5 years. That is more significant, especially as China, according to the International Grains Council and the USDA owns about half of all global grain reserves. It poses questions about the Chinese grain holding strategy and their attitude to purchasing EU grains.

Barley

Very little has happened in the barley market this month either. As Adam Smith pointed out in the 1700’s, when not much interferes with the marketplace of a commodity, its price tends to head towards the lowest cost of production. Perhaps this suggests if you can’t produce it for the current price, note that somebody else clearly can. Last month we reported that barley had, for a while, been higher in value than wheat (which has a higher nutritional value). Barley is normally about 10% lower in value than wheat and this price spread has started to correct itself .

OSR

The oilseed rape market has also been relatively slow, moved more by currency fluctuations than the fundamentals of supply and demand. Note the Southern Hemishphere crop will start going through the combines within a month and might then have an impact on EU values.

Pulses

The very small and poor quality crop from 2018 is not attracting overseas buyers to our marketplace this year. Despite this, Pulses are comparatively well priced compared with other proteins. These two points suggest pulse prices have more downside than upside (compared with the combinable crop benchmark of feed wheat). The low quality and availability of seed means the 2019 crop is going to cover a smaller area than usual for both winter and spring crops.

August 2018 Arable Update

The Wheat Market

Wheat price this morning (24th August) is a hefty £15 lower than at its high point of the season on the 8th August.  It is easy for sellers to become disheartened when they realise that they have missed the best prices.  However, only one trade is ever made at the very top of the market, and prices are still very good when looked at with a more long-term perspective.  This morning’s wheat price for nearby delivery has only been seen on 6% of the trading days since 2007; that is equivalent to one day out of three weeks.  Moreover, prior to this August, today’s nearby wheat price had not been achievable at all for over 5 years, so in fact, maybe it is a great price for sellers.  The chart below demonstrates that, since June, prices have risen by £40 per tonne; faster than at any time since the same period in 2010.  There are farmers selling grain forward who have never sold grain at this time of the year before and some selling next year’s harvest, before having drilled it. But probably not enough.

Drought conditions, it transpires, have clearly impacted on crop sizes throughout the EU, Russia, Ukraine and Black Sea countries (for example, Germany is expecting a wheat crop size 23% smaller than last year). There are concerns, largely by Russian grain traders, that the Russian authorities will impose export restrictions to manage domestic supplies; something they have done several times before.  Whilst nothing has been imposed yet, there are rumours of export limits of 30 million tonnes.  This would be 5 million tonnes lower than USDA export projections for the season, and 12 million lower than last year’s traded volume.  Curiously, Russia is likely to have harvested its third largest ever crop this season, but it is still 17 million tonnes less than last year.  This demonstrates how Russia has emerged very rapidly as a global agricultural power-house and the largest wheat exporter of 2017/18 and 2018/19.  Russian wheat production in 2017 of 85 million tonnes was far more than double their 2012 harvest, and exports were three times higher.  This explains why when a Russian official rumours a chance of trade restrictions, the market panics into an opportunity for sellers. Market fundamentals like this are so fickle and unpredictable, the market becomes highly volatile when they are happening, hence the dramatic price fall mentioned in the first sentence. The world is £15 per tonne happier about the availability of the 2019 harvest, than the current crop, in other words prices for next year are £15 per tonne lower at the moment.

Partly on the back of high feed prices, partly as lots of milling wheat varieties were drilled last autumn, and partly as harvest was gathered early, dry, heavy and bold because there was no rain damage this year, there is ample high specification milling wheat.  Milling premiums have collapsed to almost 30-year lows of sub £9 per tonne for full specification as a result.

Wheat Yields

The UK is likely to have harvested a moderate-to-average yielding wheat crop, possibly approaching 8.0 tonnes per hectare, not far from the national average of the last 5 years of 8.2 tonnes per hectare, when field edges and environmental areas etc. are considered.  We expect the UK to be a net importer of wheat yet again in 2018-19, making it the third consecutive year and fifth out of the last 7.   The UK continues to process more wheat each year, and the area planted is gradually falling, largely of course because of grass weed issues as well as marginal economics unless yields are high and costs low.

UK Wheat Supply & Demand

UK wheat export figures were published last week, confirming the 2017/2018 marketing year (2017 harvest) had the second smallest wheat export figure since winter wheat became the dominant crop in the UK over a generation ago.  The other year of such low wheat exports was in 2013, after the dreadful autumn rainfall, preventing many hectares from being drilled.  In 2017, the crop size was much more ‘normal’; it is just that it didn’t get sold and therefore exported.  Many farmers or traders are therefore still sitting on a considerable tonnage of wheat along the lines of 2.1 million tonnes, which is about 800 thousand tonnes more than is necessary for ‘supply chain continuity’ between harvests.  That might well have paid off this year, with domestic feed wheat values now a comfortable £40 per tonne higher than in the spring when the soils were still saturated.

Barley

Barley harvest surprised many people with positive yields and good quality.  Initial concerns from some of high screenings have been unfounded and nitrogen levels are usable for most requirements.  The UK will have a surplus, and so in the light of concerns of a ‘no-deal’ Brexit, some have considered selling all exportable goods this year.

OSR

The requirement for oilseed rape globally looks set to outstrip production this year, providing support for OSR to gain price lifts above that of the entire grains matrix.  However, it should be borne in mind that OSR accounts for only a small minority of vegetable oils output globally.  Most oilseed price fluctuation is based on political statements about breaking or resolving trade disputes, the outcomes of which simply cannot be known.

Autumn Drilling

Concerning autumn drilling for 2019 harvest, it is too early yet to provide hard evidence but we expect a continuation of the rise of spring cropping and possible continued experimentation with cover crops.  For wheat, the chart demonstrates a continued decline of wheat area since 2012, apart from the dreadful weather year of 2012. Whilst we believe this trend will continue long-term, we would also recognise that a ‘regression to the mean’ (small, 1-year increase) is also entirely possible.

UK Harvest Commences

UK Combinable Crop Harvest – What should we Expect?

The harvest is in its early stages; this year a little earlier than usual.  Over the last six weeks, the UK has received minimal or no rain (at least in England) with June receiving only 25% of the normal levels, and July just as parched so far.  Consequently, some crops across the country will have been too dry to yield properly.  Before that, of course, though March, April, and the first half of May, the UK received 50% more rain than normal, leaving those areas with strong soils and healthy levels of organic matter, with a long-lasting moisture reserve.

Crops were late emerging from winter dormancy or being planted often into cold, wet spring soils and so had a lot of growing up to do in a short amount of time.  This alone reduced expectations of harvest yield.  But it is possible that those crops on land strong enough to retain some moisture for a while may have done better than expected.  It appears that moisture held deep below the soil’s surface has, on may farms, been a lifeline for the survival of this year’s crops, with the sunshine and hot weather providing an opportunity for heavy, high bushel weight crops to develop.  It has been mentioned that this is the weather pattern that more continental countries experience every year, the Paris Basin included.  Crops on lighter soils though will presumably bring overall yield averages down.

OSR

More specifically, oilseed rape, whose harvest is now well under way, needed minimal swathing or spraying in many parts this year.  Some crops are dry but not completely mature, with brown seeds.  As yet, yields appear to have held up well, albeit maybe not a record season, even after moisture adjustments are accounted for.  Farmers should be careful not to harvest oilseed rape too dry as it can incur penalties if moisture levels are below 6%.

To recap, the standard FOSFA contract for oilseed rape is for 9% moisture.  You lose 1% of price if moisture goes up to 10% and gain 1% for every 1% the moisture falls down to 6%.  Below that point, it becomes difficult for a crusher to extract oils so could be unsellable.  Certainly, a penalty such as a blending charge with wetter seed would become payable.  It is worth getting the moisture right and if you’re not sure, keep it comfortably above 6%.

Barley

The barley harvest too is under way, with moderate to good yields, and excellent quality on the whole, although it is too early to reach big conclusions about national yields.  Bushel weights are high, meaning a greater tonnage might fit in the barn than usual.  It also means those farmers who take their own grain to a store, should beware of trailer weights; overweight vehicles tend not to be prioritised for tipping, or, if more road travel is required, not allowed back on the road.  Some hauliers might end up carrying too heavy a load; it is the driver’s responsibility and could be expensive to them.  It will catch some hauliers out.

Wheat

It is possible that the very first wheat crops are starting to be cut now, but it is too early to make any useful comments about it.  More next month.

April Arable Roundup

Spring Drillings

Much catch-up has been played in the last week and now most spring crops have been drilled (with the exception of Scotland).  The next task is to spot the dry, non-windy days to follow the agronomists’ instructions.  There will probably be a small increase in fallowed land as a response to the very wet, late arrival of spring, but any more than 30,000 hectares of idle land above last year’s area would surprise us.  Indeed, that would leave fallow land higher than any year since 2007 when set-aside was required.  More likely most spring drilling plans will still be followed, albeit late, potentially into sub-optimal conditions, and yielding less than initially hoped.  The output from these crops may yet be reasonable though, as long as they get the agronomic attention they deserve and favourable weather from here on.  But whilst it is early days yet, it is probably best not plan for record yields this season.  Remember also, autumn crops that emerged from dormancy into cold puddles, their roots sat in cold, saturated soils for many weeks might also demonstrate their discomfort with poorer yields.

In November last year, the expected area to be drilled this spring, particularly with barley but also wheat was high.  In the last three years, the total spring combinable crop area in the UK has covered over a million hectares.  The AHDB’s Early-Bird Survey of planted area and planting intentions suggested 778,000 hectares of spring barley; potentially the highest area in 17 years and second highest in 30 years.  This is a big-ask in a tricky season and the drilling window is ending for most crops in England, and despite more summer daylight, Scotland will not be far behind.

In amongst the kerfuffle of trying to drill and apply plant protection, it is now also time to plan the forthcoming grain marketing year.  The realistic ambition should be to sell at a price that is a good average (and covers costs of production) rather than hit all the market peaks.  How much will be marketed ahead of harvest, at harvest and afterwards?  With a potentially lower overall crop-size, it might be prudent to sell slightly less ahead of harvest.

New Crop Markets

Over the last month, UK new crop wheat markets lifted by £4 per tonne, reaching 6-month highs.  This is largely to do with new global projections for wheat production being slightly lower than consumption and therefore potentially a small decline in global stocks.  Clearly this is all based on average yields and harvested area calculations, but if true, this would be the first decline in stocks for five seasons.

The Pound, which strengthened in the light of a glimmer of Brexit clarity, rose to exceed €1.15/£1, for the first time in almost a year.  A stronger Pound lowers grain and other domestic prices.  But the market fundaments outweighed the currency movements.

Furthermore, the Vivergo bioethanol plant at Hull that has been closed for four months now has reopened in the light of rising oil prices.  This could help mop up the year-end surplus ahead of harvest.  This time last year, UK Brent crude oil was valued at $55 per barrel, and it fell to $45 last summer.  Now, because of the recent airstrikes and other political shenanigans, Brent has risen to over $70 per barrel; surely good for the bioethanol industry.

Several boat loads of oilseed rape will be entering the UK in the coming month, with the southern Hemisphere harvest now available and some EU surpluses having been purchased for processing here too. That is likely to flatten the market, possibly until harvest now.  The bean market is following a similar set of fundamentals, with pressure from Australian exports to Egypt making our exports less competitive.