Tag: Combinable

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.

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.

Combinable Crops: January Update

Sterling is at its strongest point against the Euro for almost a year and a half (which lowers grain values), yet it is still only 4% stronger than it was when it started rising in early January. This means it has taken approximately £7.00 off the price of a tonne of wheat, and £13.00 from oilseed rape.  For many, this is the difference between a profit and a loss, but, equally, is not such a violent swing as we have seen in previous marketing years, when wheat price has shifted by far more in single days.

The grain market is relatively quiet; surprisingly high amounts of wheat remain unsold, despite some predictions from the trade that farmers would be sold ahead of Brexit.  In fact, the farming community being pro-Brexit on balance might see opportunities from selling later this year.  However, long-holders should be aware that the spread between old crop and new crop wheat currently sits at just under £20 per tonne, ex-farm.  Large price spreads like this have to close at some point which suggests either old crop is too dear or new crop is cheap.  The chart below shows the big step in prices as we look ahead to 2019-crop.

The discount from feed wheat to feed barley currently sits at about £10 per tonne, a comparatively small 6% of the wheat value.  Yet despite this, the discount is attractive to feed compounders.  Good quality malting barley retains a comfortable £30 per tonne premium over feed barley, but the market is currently thin with small volumes of new business being done.

The pulse market is also thin, with not many beans remaining unsold on farm.  The market is therefore starting to turn to new crop marketing; a difficult one as quality is unknowable at this time of year ahead of harvest.  The market has been strong though, with the price spread of feed beans over feed wheat having risen to over £50 per tonne: a margin not seen since the spring of 2015.  This is largely because of the small and damaged harvest of 2018 following the hot weather, coupled with political complexities within the global vegetable protein market at present.  Many farmers will be looking to secure more spring bean seed, although its availability is not clear, despite a derogation for certified seed to have a lower germination this year than usual.

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.

January Combinable Crop Market Update

Last July, nearby and forward prices of UK wheat on the futures market converged to within £1 per tonne of each other at a spike of £157 per tonne; £15 per tonne higher than the market had been only 3 months earlier.  It looked like the start of a bull run.  Since then, the market has slipped back nearly £20 per tonne for old crop and about £14 for new crop.  Prices for harvest 2019 are somewhere between the two.  There is lots of talk of currency causing movements in the value of grains and other commodities, but, back in July, the pound was worth €1.13 (€1 = 88p) and today the exchange rate is the same.  In fact the Pound has been relatively steady at these levels of between 88p and 90p since September, and in a slightly larger range since last June.  Plus, the independent movement in futures positions clearly cannot be a function of currency as it would affect them both equally, but is therefore a series of grain fundamentals moving separately for each crop.  The movements, whilst adding up, have been gradual but consistent. Without much grain crop production news at this time of year and ample supplies to keep the consumers out of the news, price movements are often gentle and less noticeable. But it is still a £20/tonne fall since last summer.

A gentle but persistent underlying bearishness in the market is borne out by the UK futures.  This can possibly be explained by the chart below.  It shows how the USDA’s monthly expectation (forecast and then estimate) of the 2017 global wheat harvest has changed since the first estimate in May 2017.  Its estimate of global production has risen by 20 million tonnes to 757 million tonnes. Whilst this doesn’t sound particularly much, it is approaching a 3% increase in global output expectation; considerably more than the UK produces in total.  The USDA’s consumption figures have increased but by much less (6 million tonnes), meaning considerably more crop is now available than was initially thought.

USDA Monthly Global Wheat Production and Consumption Estimates – Harvest 2017

Whilst anything can happen, it does appear that downside currently exceeds upside in the wheat market. We are aware that any information that is reported on (including USDA statistics) is built into the market immediately meaning forecasting further moves is not possible from public information, but a heavy surplus is likely to slow any future bull runs.  Indeed, wheat has fallen more than barley this month, and the difference in some regions is now small.  We might see some feed consumers switching from barley into wheat.

Global soybean trade can be simplified as either a) from USA or Brazil to China or b) any other trade. Between them, the USA and Brazil account for 83% of global exports, and China alone accounts for 65% of imports.  Whilst exports in both countries have been rising, Brazil now outstrips the USA as the major soybean supplier for the world.  Indeed, China has been favouring Brazilian beans this year.  This is possibly a price issue, with the Brazilian Real weakening making them more competitive, but also as their protein is consistently higher.  China buys soybean, primarily for the meal, not the oil. We would generally expect a weakening of US prices to have a greater impact on EU oilseed (and pulse) values than Brazilian, being more closely connected to the EU marketplace, however, the overall balance between supply and demand is the ultimate arbiter of the base price for commodities.

Whether higher protein adds value in beans is a moot point: A recent seminar on pulses held in Peterborough, was told by a prominent pulse buyer that whilst higher proteins is preferable to lower proteins in beans when it comes to securing export outlets, protein levels do not attract higher payments and growers would not receive more.  In other words, the key in the UK when growing pulses is to go for yield, and not protein.  At least not until the buyer recognises it as preferable by way of price differentiation.