Tag: combinable crops

OSR Area to Rise

The results of the annual Early Bird Survey of UK planted intentions show a 13% rise in rapeseed area for harvest 2022, at 345,000 hectares.  The increase is not surprising given how firm rapeseed prices are.  But, the fact the increase is not greater, reflects the large increases in rapeseed prices since mid-September.  This is after most planting has been completed.

The area of arable fallow is also seen increasing year-on-year.  This is a possible reflection of the surging cost of inputs this season, which will challenge many margins.  With high nitrogen costs we may have expected to see an increase in the area planted to leguminous crops.  However, this is not the case, and the area planted to pulses is forecast to fall by 5%.  As with OSR, this is likely driven by the timing of price rises.

Unsurprisingly, wheat remains a firm feature in the rotation.  The area planted to the crop is set to rise for the second year in a row, following the disastrous 2020 harvest.  The area is seen rising to 1.81 million hectares.  This is slightly down on the 1.82 million hectare crop for 2019.  This will go further to easing the tight domestic market we have now, following the 2020 crop.

With a rise in the area planted to wheat and OSR, barley and oats look set to lose out.  The total area intended to be planted to barley is down 4% at 1.10 million hectares year-on-year.  Area is also seen down 101 thousand hectares on the five-year average.  With grain prices firm it is arguably no surprise that spring acreage is down 8%, whilst winter area is seen up 4%.

If the intended area planted to barley is realised, then we could see the narrow discount of barley to wheat continue.  The barley market is tight at present in the UK, and a reduced acreage would do little to replenish stocks.

It is worth highlighting at this stage these figures represent intentions, rather than confirmed plantings.  Spring acreages are still very much open to change, dependent on the price of both outputs and inputs (especially this season).

 

Harvest 2021

Following the poor crop of 2020, the harvest of 2021 was always likely to yield more positive results.  However, initial output figures from Defra were lower than some had expected.  The table below highlights the arable results from the 2021 Survey of Agriculture and Horticulture, showing crop production and area figures for the main crops in the UK.  The data is provisional, with final results due to be published on 16th December.  Figures for both Wales and Northern Ireland have been rolled forward from last season.

Wheat production was seen increasing by 45% year-on-year to just over 14 million tonnes.  This was primarily driven by a rebound in area following the difficult drilling campaign in 2020.  That said, average yields were lower than some had expected.  Yields in the south and east of England were seeming affected by the damp and dull summer.  Lower bushel weights and higher moistures were seen for many; Defra standardize wheat production to a 14.5% moisture.

For barley, lower production is no surprise, particularly given the large reduction in spring barley area.  The drop in area is countered by stronger yields, particularly for Scottish spring barley.  As a result, total barley output is just over 190,000 tonnes lower than the 2016-20 average at 7.1 million tonnes.

Once again, the challenges for oilseed rape (OSR) are evident.  With cabbage stem flea beetle (CSFB) still a huge challenge for many growers, the area planted to the crop fell to just 306,000 hectares.  This means the area planted to the crop has now fallen 399,000 hectares in the last ten years.  Even with an improvement in yield, production is seen below 1 million tonnes for the first time since 1989.  With OSR prices very firm at planting, will we see a rebound in acreage, despite the challenges of establishing the crop?

Oats have continued to gain acreage in recent years, owing in part to the challenges of growing OSR.  Production increased for the third year in a row.

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.

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.

June Arable Market Update

Rain has fallen in Scotland which has helped the late-drilled spring crops there, but for much of England, especially in the East, the dry weather is of growing concern.  The dry conditions are now likely to affect cereals yields on the lighter land, despite the very wet spring.  Some reports suggest the growing season has been curtailed at both ends, meaning less time for yield development.  This is potentially true for all combinable crops including both cereals and oilseeds.  Being a relatively small island on the global stage, the impact a lower harvest size would have on price tends to be relatively small, beyond possibly raising the import requirement for some grains.  However, this factor is raising old crop prices for barley, but for most crops, sufficient carry-over is already arranged by processors.

After the significant rises in prices through May, markets for wheat for this coming harvest did not change over the month to the 25th June, despite about £6 per tonne volatility.  However, the values for 2019 harvest rose by £7.30 per tonne.  The spread of values really only took place since the 22nd June as shown in the graph:

As the chart also suggests, the wide price spread is unlikely to remain so large for long suggesting either the 2019 harvest prices will come back down or 2018 values move up.  However, it also gives an indication of the markets expectation of tighter stocks in the future than there is today.  This coming harvest, a lower global stock level is expected, albeit a small decline; perhaps the expectation for greater declines in the 2019 marketing year is mounting.

Markets elsewhere around the world fell in the month to June 25th; Chicago Soft Red Winter wheat for December 2018 for example slipped by over £15 per tonne.  Since early March through to 12th June, a rise in market prices had been occurring on the back of dry conditions throughout Russia and several other wheat-producing countries; each potentially nearing stages where yield might become impacted by lack of water.  However, the market falls have been entirely political, with rumours of Mr. Trump’s trade barriers reversing Free Trade and hampering almost all global markets, including agricultural commodities.  As is often mentioned, trade wars are seldom helpful.  Indeed, the US wheat market lost 8% of its value because of it, explaining the considerable divergence between US and European price movements.

From the opening of the November 2019 contract (Jan 2018) until 19th June, the markets have been gradually moving in the right direction for long-holders (farmers), with prices for 2019 harvest mimicking the nearer ones (just slightly less volatile).  The declines in the Russian crop as forecast by the USDA and other teams of economists will continue to support prices.  Those who calculate supply and demand tables are suggesting the global wheat stock level is likely to take a reduction this coming year for the first time in five years.

Maize production expectations in the US have been very high this month, with crop ratings at record levels for this time of year with 78% achieving good or excellent condition.  The relationship with this measure and crop yields have not been brilliant in the past, but it certainly demonstrates that a drought (which takes a long time to set in and affects very large areas) is unlikely this year.

US soybeans took a greater price hit than wheat as a response to the developments in the global trade war, as such a high proportion of trade is sold from the US to China and tariffs have been imposed on this trade, which will profit the Brazilians and few others.  US soybeans almost reached 10-year price lows in June.

The old crop pulse trade is now completed.  Traders are reminding growers that this is key time for treating the most common insect pests including black bean aphid and bruchid beetle. Four out of every five downgrades of beans last year were because of the beetle.