Grain Markets

The price of grains has recently increased, driven by concerns about new crop prospects, with world supply and demand tightly balanced.  In mid-April, the price of new crop UK feed wheat futures (Nov-24) reached £200 per tonne for the first time since mid-January.  The increase in prices follows concern around crop conditions in key global markets.

Close attention is being paid to global weather patterns, with global grain stocks following the 2024 harvest expected to rise by just 1 million tonnes, year-on-year.  This is a significant decline in the International Grains Council forecast of stocks from the previous month (see table).  Managed money funds still hold a large sold position in grains and oilseeds, essentially betting on prices moving lower.  Recent weather concerns have led to some buying, increasing prices.  Further weather concerns would lead to more fund managers reducing their short positions.

The decline in output forecasts is driven by two key factors, concern over the production of South American grain in 2023/24 (reducing carry-in stocks), and reduced North American maize acreage.  Brazil has been suffering the lingering effects of El Niño, a weather pattern which brings warm, dry weather to South America.  This has resulted in significantly lower soil moisture reserves.  Much of the Brazilian maize crop will be planted in the coming months. With little chance of above-average rain in the coming months in central Brazil, crop prospects could yet worsen, supporting prices.

Dry weather is aiding progress with maize planting in the US, with progress ahead of the five-year average.  US farmers are expected to plant 5% less maize this year, in favour of soyabeans.  US weather will again be a key watch point for grain pricing this year.  Also in the US, the proportion of winter wheat crops rated ‘good’ or ‘excellent’ was estimated at 50% in the week ending 21st April; down 6 percentage points since the beginning of the month. The fall in conditions is due to dry weather.

Conditions have improved in Europe.  Warm dry weather throughout spring has aided planting progress in France and Germany.  However, winter crop conditions are still poorer than normal.  Concerns will be rising about the impact of warmer/dryer weather on winter crops.  The EU Commission crop monitoring report highlights the rapid acceleration of plant development in France and the increasing prevalence of disease pressure.

In the UK, crop conditions are down significantly on previous years.  To the end of March, just 34% of UK winter wheat was in ‘good’ or ‘excellent’ condition.  This is down from 90% as at March 2023.  A further update to crop conditions is due to be published by AHDB in May.  Winter crops are looking healthier than they were a month ago, where established, although not everywhere and challenges still remain for many especially in the North of England.  Furthermore, rainfall has continued to hamper spring planting efforts in the wettest regions, although progress has been made elsewhere.

 

Grain Market Update

Grain and oilseed markets have continued their decline through January.  Any uncertainty or risk premium associated with Russia’s invasion of Ukraine, almost a year ago, is priced in.

Combinable crop pricing is now very much centred on the balance of supply and demand at a global level.  Whilst grain markets are tighter year-on-year, expectations of large maize production in Brazil are pushing prices lower.  There may be some support going forwards, although this will depend on the extent to which dry weather impacts Argentinian maize and soyabean production.

Crops in the Northern Hemisphere are developing well.  A generally mild winter across Europe and the Black Sea has aided crop development.  That said, close attention will be paid to Ukrainian output, particularly of maize.  North America had been an area of concern with drought in key production regions but recent rainfall has contributed to the decline in prices.

UK markets have, unsurprisingly, followed the trends of global combinable crop markets.  Ex-farm UK feed wheat was quoted at £213  per tonne on 27th January 2023, down more than £15 per tonne on December levels.  Milling wheat prices have shown more resistance to the decline in global grain prices.  Ex-farm milling wheat premiums are approaching £57 per tonne.  With expensive nitrogen, and a lack of recommended Group 1 milling wheat varieties, there is a challenge for 2023 milling wheat supply.

Feed barley prices have also declined by less than feed wheat, down more than £8 per tonne from December levels, at £201 per tonne on 20th January 2023.  For domestic grains there will be demand concerns; poultry placings in November and December were noticeably down on year-earlier levels.  Additionally, the breeding pig herd is reduced following the last two years of challenging margins.

In the UK, ex-farm oilseed rape was quoted at £434 per tonne in January, around £134 per tonne behind January 2022 levels.  The decline has been driven by larger oilseed crops globally and reduced crude oil prices.  Soyabean production is forecast to be up almost 30 million tonnes year-on-year; largely driven by South America.  Argentinian dry weather may offer some support.  Additionally, large biodiesel mandates in Brazil and Asia could offer long term support, if unmatched by oilseed production increase.

Other protein prices have been stable.  Feed bean prices have fallen by £7 per tonne month-on-month, to £248 per tonne.  Feed pea values increased by £3 per tonne, to £248.

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.