Tag: oilseed rape

Harvest and Arable Markets

The harvest is in its early stages, with approximately a third of the winter barley in the Southern regions cut so far (it was three quarters this time last year).  At this stage of harvest, high variation of yield and quality is easy to observe.  We will refrain as the first fields present an unreliable bellwether for the rest of the harvest.  This is particularly as light southern soils often reach harvest before the heavier soils, and show greater yield variation, especially in years when drought has played a part in the year.  However, reports from most regions suggest that conditions are good, yield potential remains high and certainly far better than last year for most growers.

UK wheat markets have risen by £5 over July, but it has been an up and down month.  This has taken other crops with it overall.  Across the world, harvest is moving North.  Most winter wheat in the US has been harvested now.  The springs in northern USA and Canada will be next.  These crops are parched and yields are expected to be low.  Yields across Europe are generally good though.

Every July/August, the world looks carefully to see how closely harvest matches demand and earlier projections.  We hear about dry conditions around the world and the fragility of the food supply chain comes to mind.  The harvest in the Northern Hemisphere over the next two months being so critical to the survival of the ever-growing population.  There is no room for complacency and severe global drought would indeed cause problems across many countries (half of all grain stocks are hidden in China).  However, a number of economists have been proven wrong throughout history by projecting the inability of agriculture to meet the needs of its population.  Currently, stock levels and crop conditions are good and the first real indication of such a situation would be a strong rise in grain values.  This is not happening as we move from old crop (import parity) to new crop (export parity), with the associated price adjustment as we move to exporting wheat again.

Oilseed rape harvest is pressing on, whilst the price is being pulled by good soybean crops in America (North and South) and very dry Canadian OSR/Canola crops.  Within a month, this will be cut and the impact will be assessed rather than estimated or forecast which is what the currently fluctuating markets are based on.

June Arable Update

Much of Britain now probably has sufficient soil moisture to see the combinable crops to harvest, especially oilseed rape and barley.  We are projecting crop sizes of 7.1 million tonnes (mT) for barley (1.2 million less than 2020); 15.1 mT of wheat, approximately 50% rise on last year; 1.1 mT for OSR, 100,000 tonnes more than last year and about 100,000 tonnes more oats at 1.1 mT.  Overall, including ‘other cereals’, we are anticipating 26.7 million tonnes, up from 22.8 mT last year.  The figures are based on our expected crop areas and average crop yields 2014 to 2019.  This represents no records in either direction.  Whilst the crops areas appear relatively ‘typical’ we note there are still a lot of farms whose rotations are not back to what the management would have hoped for.

Old crop wheat prices have fallen £10 this month, slightly less than last month’s fall.  Old crop and new crop always come together so when new crop harvest starts, they are the same.  The fall is of little significance as so little is left.  With such a large price spread between old crop and new crop, few farmers have held on to grain.  New crop wheat values have fallen a Pound or so over the month, but have remained in a tight price range (£9.00 per tonne) since early April.

Across Europe, crop walkers have been reporting good yields pretty much everywhere.  The French for example estimate over 80% of their crop is in good/excellent condition, this compared with 56% last year.  Further afield, there is some concern that American crops are rather dry, but nobody is panicking yet.

In the table below, we have updated previous years’ data with the AHDB estimates and our own thoughts and calculations for the 2021 harvest and its subsequent marketing year.  We think that the UK will revert back to being a net exporter of wheat, having imported more than we exported last year.  Export Parity (i.e. the price grain needs to be to be sold out of the country) tends to be lower than import parity (the price it has to be to stop imports from coming in from elsewhere).

The barley market is currently quiet, as the buyers are waiting to see what the new crop brings.  UK barley is too dear compared with that from other locations to attract exports.  It is also too close to wheat price for most feed mills.

The UK OSR crop is looking rather well as it starts ripening.  This will be difficult to see for so many growers who decided not to grow it this year.  One has to ponder how many growers will return to OSR this autumn for next year?  We expect a rise in cropped area.  Prices have shot up in the last month from already high levels.  Normally we would expect oilseed rape to sit at about 2 to 2.2 times the value of feed wheat.  We are currently between 2.5 and 3 times, depending on date of movement, making the comparative gross margin of OSR quite attractive.  UK OSR is also trading at a premium over Paris rapeseed prices.  This is because we have imported so much (over half a million tonnes) this season.  This is mostly from beyond the EU.  For those planning next year’s rotation, remember price relationships will be quite different by the time they are sold.

Grain Market Briefing

In early May, wheat hit contract highs, for example £192 per tonne for November 2021 London futures.  Since then, markets have fallen by £20, leaving the same delivery position worth £172.  Values throughout the world have fallen in a similar manner.  Global sentiment is mostly driving this.  Weather conditions have improved for crop growth as lots of rain has arrived  – not just in the UK but around the world.  Record yields of wheat are now projected for the forthcoming US harvest. Coceral, the European Association of Grain traders, has increased its European harvest projection from 126 to 131 million tonnes of wheat; a substantial uplift in a single month.

This time of year is traditionally volatile for grain prices.  This is partly on technical issues to do with tying up the paper transactions associated with the old crop.  It is also as rain or no rain push markets around.  The market swings are often greater than the benefit or damage the rain has on growing crops.  It is not only the effect on crops that are already in the ground.  The rain that has fallen in the US Midwest, the grain basket of the West, allows ideal conditions for maize and soybeans planting too.

Old crop wheat Futures expired in May, at the time £25 per tonne higher than new crop.  Therefore, it must be assumed that all barns have been emptied with that size of price drop.  This should allow ample time to clean them and ensure they are in top condition for the 2021 crop.

Feed barley has slipped in line with the decline of wheat price this month.  Malting barley premiums are mixed.  This is partly as the UK anticipates a smaller and far more manageable barley crop in 2021 than the mammoth crop last year.  It is also in reflection of the current ideal barley ripening weather conditions in Central Europe.  The high proportions of barley used in feed rations in 2020/21 are being reduced in preparation for the smaller 2021 crop.  Demand is thus likely to be lower this coming marketing year.  Growing and ripening conditions are good for barley throughout Europe. Some harvesting might even have started by the next edition of this bulletin.

In the 2020-2021 marketing year, China moved from importing no more than 5 or 6 million tonnes of maize each year to importing 25 million tonnes.  The USDA has projected a similar level for 2021-22 (harvest 2021), but some analysts believe they have already booked approaching that amount.  This suggests their maize importing might continue rising in the coming years, in a similar manner they did for soybeans over the last couple of decades to world-changing levels.  This could tighten supply in 2021/22, potentially pushing the whole grain price matrix higher.

Oilseed rape price has also declined, albeit by proportionately less than the cereals market.  It is easy to note that OSR has fallen £20 this month.  But also remember it is £60 per tonne higher than three months ago, even after the recent fall.

Grain Market Update

Old Crop

Technical changes:  Towards the end of the grain marketing season, markets respond to the fundamentals of grain supply and demand differently.  Attention turns increasingly to the fundamentals affecting the new crop.  The increasing amount of information about new crop overtakes the dwindling old crop commentary.  Not Much old crop grain remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop being traded is rising all the time. This surpasses the declining volumes traded of old crop, especially this year with such small amounts of old crop wheat to start with.  This accelerates when the last old crop wheat 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.  Unfortunately, grass is not forthcoming because of the dry and cold weather. Consequently, demand for feed barley has picked up from feed manufacturers in what would normally be the last embers of the old crop campaign.  Unsold old crop grains might experience a surge in the last month of the market before new crop harvest.  Other old crop users; millers, maltsters and other feed compounders are trying to get to the cheaper new crop with minimal carry-over.

The pulse market sometimes takes a small bounce as the last vestiges of the old crop market are mopped up and sent off on a boat.  This has happened with some local buying interest but the Egyptian market is dominated by the Australian crop now though so any business will represent the last breaths of an old crop trade.

New Crop

We are all aware of the need for emerging (spring) crops to receive rain in almost all of the UK.  In fact, there are dry conditions from the US Midwest, to the far side of Europe.  Agronomists think that the lack of moisture is starting to affect yield potential in many parts of the world and UK.  Winter crops have a remarkable ability to recover from dry weather conditions.  Drought initially affects markets more than crops, especially when it is international.  At the start of April, cereals prices were heading down, having peaked in January.  Since then, they have roared back up by nearly £20 per tonne, to contract highs, and a day or two more of dry conditions and they could go further.  Clearly, heavy rains could reverse much of these gains.

Dry spring conditions of course affect spring crops as well as winter.  Globally, two third of feed grains are are spring grown.  Thus, concerns from consumers are encouraging them to book what might be a scarce resource in the coming 12 months.  Speculators, not wanting to buy grains, but to cash in on the rising market values have also been wading in on the game, exaggerating the movements.

Barley price has risen more than wheat.  Not only is two thirds of the crop spring-grown in the UK, making it more vulnerable to drought, but the spring barley crop area has fallen back considerably to ‘normal’ levels.  The new crop feed barley discount to feed wheat has come back down to the conventional levels of sub £15 per tonne.

Soybean prices have reached their highest values for 8 years.  UK oilseed rape has gone up by another £20 per tonne.  Demand for soyabeans from China is higher than ever, despite the ill-found concerns from last year’s African Swine Fever.  The rapidly returning stock of breeding pigs is replacing the gap left from the porcine cull.  This required lots of beans to feed them with then oil cook them in.

New crop pulses have not really started trading.  The quality of beans being very unpredictable ahead of harvest, after which, market open.

Grain Market Thoughts

The world grain and oilseed markets remain dominated by a seemingly insatiable appetite by China to import ever-increasing tonnages of all grains and other commodities.  It has been importing most of the world’s traded soybeans for many years now but has only recently entered the market for colossal amounts of maize and wheat too.  This demonstrates that the Chinese agricultural policy of hundreds of years of being self-sufficient in grains is well and truly finished.  According to statistics published monthly by the USDA, the Chinese now hold not only two thirds of global maize stocks (9-months’ Chinese demand), but also 50% of global wheat stocks, 35% of soybeans 60% of rice stocks and 40% of the cotton.  Something is going on.  Some global food supply reports suggest China is about to experience a major food shortage and global food prices are therefore likely to rise any time soon.  Other reports suggest the stock levels are quite wrong and China is not hoarding quite so much.  The truth is likely to be that even the USDA does not really know for sure what China has (perhaps the Chinese cannot be so sure), and of course, being part of the US Government, the USDA could have another agenda, but it’s the best information we have.  China did build up similar stock levels at the turn of the Millennium, so it is not unprecedented.  It subsequently then ran down stocks, contributing to a bearish grain market for some years.

This time of year, crop reports from around the world are a major factor in the pricing of the new crop.  People might look first at the eye-catching old crop prices, but as most of that will be sold by now (or at least committed and priced), the new crop is of more significance.  November 2021 futures closed on the 25th March at £33 per tonne lower than May 2021, at £166 per tonne.  Russian analysts have recently reported good growing conditions for their wheat and increased their tonnage projection by 3 million tonnes (to 79 million) despite relatively poor crop ratings.  The Ukrainians too have done the same, reporting their wheat is in an excellent state and the positive reports travel through Europe too with Strategie Grains also posting good yield expectations for European wheat crops.  Despite the avid export of all grains to China, it is these positive prospects for production that has taken the edge off the grain prices in the last month.

New crop barley, whilst still having a larger discount to feed wheat than most years, has at least fallen to £15-£20 per tonne from feed wheat which compares favourably against the £30+ discount for old crop.  Not only is the production far lower than last year, but also we can hope that come June, people might start drinking more beer again so the malting industry might be rekindled.

The oat market took a boost this month with news that a new oat buyer is planning to set up in Peterborough.  Oatly, a Swedish company will make milk from oats to supply the growing market for animal-milk alternatives (see below). Farmers have found oats a very useful crop agronomically in recent years, but held back from growing it as few buyers have been in the market, so perhaps this will encourage a greater cropped area.

Oilseed rape for post-harvest looks as encouraging as this season’s prices have proven to be.  Perhaps some growers who opted away from the crop will be looking at these bid prices wishing they had tried growing it again.  Perhaps next season, the crop will experience a resurgence of area cropped.  The supply and demand table continues to look tight for new crop because, despite a likely rise in production from Canada, the largest producer, the other main regions (particularly Ukraine and Australia) look set to be lower.  Europe will remain in deficit too with large planted area reductions throughout the continent.

Demand for pulses has fallen away this month, as is often the case in March, as the Australian crop starts reaching the North African buyers.  The market will be thin from now on, and occasionally closed.

Arable Update

It is early days yet, but the world is gearing up for record areas of maize plantings in the US.  Indeed, the USDA published its predictions in February with exactly that.  It might be expected that this would cause prices to collapse but, of course, the global populations keep rising and so with more mouths to feed, consumption needs to be a record every year, just to keep up.  The market recognised this and quickly calculated the plantings estimated by the USDA might not be sufficient.  Indeed, maize stocks are thought likely to reach a 7-year low at the end of the season.  Prices rose.  This is all rather forward looking as the Midwest (where most US maize is planted) does not get its drills out for another month or two. Southern States like Alabama start in March but more northerly areas such as Illinois (where more is planted) is late April.

Yet, grain and oilseed prices are at 7-year highs, or even higher in the UK and other national markets.  Production is clearly only half of the story.  In fact, the country with most mouths to feed is not only buying ever-increasing amounts of soybean (having imported vast amounts in recent years and hitting a gigantic 100 million tonnes in 2020/21), but is also now buying maize and wheat.  China’s food policy for millennia was to be self sufficient in grains.  This has changed.  The chart demonstrates that when China decides to buy something, it does so in volume.  Its wheat imports have doubled to 10 million tonnes this year and maize imports tripled, adding another 16 million tonnes of new demand to the crop.  The world will certainly feel it.

According to USDA estimates, Chinese wheat stocks at 155 million tonnes are half the world’s wheat reserves, and 10 million tonnes more than China consumes in a year.  China will also carry over enough maize to keep it going for 8 months.  One has to wonder what it is up to, either something big or it will release it all onto the market again at some point, something the Chinese did at the turn of the millennium, an action that contributed to 5 years of low grain prices.

Unusual weather around the world is, ironically, usual at this time of year with plantings and crops emerging from winter in the more southerly countries.  It often affects markets more than it affects crops suggesting it has limited long term impacts.  In the UK, whilst snow melt and subsequent rains have topped up the soil moisture levels to ‘saturated’ in many regions, the warmer weather and winds have also been starting to prepare soils for spring cropping.  A lot still depends on the rainfall in coming weeks though.  Barley remains cheap compared with wheat, and whilst new crop wheat has been steadily rising in price (November futures at £170 per tonne), the discount from old to new crop is about £35 per tonne. There will be nothing carried over this year.

Oilseed prices have been strong, pushed about by currency shifts, and the Chinese business (above), plus poor weather in south America.   Demand in the EU is tight, partly as people throughout the EU have still been driving a lot in the more recent wave of lockdowns and therefore buying biodiesel.  There will not be much OSR in the EU by harvest time.

The pulse market is still busy but possibly falling a bit as the Australian harvest is now in full swing and some of which has already reached the Egyptian shores, depressing demand from the UK.

 

 

 

 

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.

December Arable Markets

Looking out onto a very soggy Leicestershire, it seems that this November and December might have been as wet as the last.  The difference is that, this year, most winter crops have been drilled already, and, on the whole, established better than last year too.  Certainly, in this part of the East Midlands, if something has not been drilled by now, it has little chance now until the spring – a similar scenario to last year.  There have, at least so far, been few frosts and cold icy mornings, perhaps the New Year will treat us to some.

Monthly publications about global crop production and demand at this time of year tend to be rather dull; there are few new crops to report on or harvest progress reports, just a few comments on how much winter crops appear to have been drilled in the Northern hemisphere.  These publications only gradually improve the already available data with tweaks here and there meaning price changes are less dramatic than in spring or summer.  Statisticians and economists therefore tend to have less of an impact on grain prices than politicians and currency brokers.  It is Politics this month that lead the UK market swings.  No grain exporters are brave enough to sell consignments of grain that might end up having a prohibitive tariff on it (the tariff is charged at the point of export, rather than the point of sale) so selling for delivery after New Year is a game of commercial roulette.  So we await news of a trade deal with Europe which, as the article above points out, is very close to completion, yet potentially miles away.  In addition, we also need to know about the Tariff Rate Quotas that could make a dramatic difference, for example to the 1 million tonnes of surplus barley the UK has stockpiled in barns.  Over 400,000 tonnes of barley had been exported to the end of October, but this has not continued at the same pace since then due to the uncertainty on the trade rules.  The spread between feed wheat and feed barley remains substantial.

The African Swine Fever that swept through China does not appear to have had any affect at all on the demand for soybeans that, it was understood, was fed to the pig herd.  China is importing more beans this year than ever before, and that is tipped to top 100 million tonnes, almost two thirds of all global trade.  Demand for oils is strong, and with a small oilseed rape crop in the barn and in the ground in the UK, the price has firmed.

The pulse market is relatively thin.  This can work in favour of the seller (the farmer) and against.  Over the last couple of months, prices have been high, and offered good opportunities for farmers to make high gross margins.  But the few buyers have stopped buying and prices have fallen considerably.  It could get worse, in some cases in thin markets crops can be hard to move at all.  Buyers are now covered until the New Year when they might enter the market again.  At least pulses are not really affected by Tariffs, having low rates and exports mostly go outside the EU.

Early-Bird Crop Area Forecasts

The AHDB’s Early Bird Survey of cropping intentions for harvest 2021 was released in December, showing a significant rise in winter cereals area.  The table below shows a summary of the results.  Changes in cropping area have been extrapolated onto the data from Defra’s provisional 2020 UK June Survey to produce forecast crop areas for the next harvest.

The wheat area is forecast to rise by a substantial 28%.  If this is correct, it would result in 1,815,000 hectares for harvest 2021 – similar to 2019 levels.  The spring wheat proportion within total wheat is seen falling to about half its 2020 area to 56,000 Ha.

The winter barley area is expected to have risen by 24% to about 394,000 hectares.  Oilseed rape’s decline continues with another 18% reduction on top of the area collapse from last year to 318,000 planted hectares.  This would be the smallest area drilled since 1986.

The area of spring crops is expected to fall in 2021.  Spring barley is down by 30% to 767,000 hectares; a fairly ‘normal’ area.  The survey suggests that the pulse area may rise by 7% to 257,000 hectares, a high since 2001, as growers switch from oilseed rape.

This year, the large percentage swings are demonstrating the correction back to more trend-like levels of cropping that we are familiar with in a year with reasonable drilling opportunities.  It maintains the long term trend of gradually decreasing winter cropping.  With opportunities for large amounts of first wheat, ample time for ground preparation and early opportunities to drill, we might have expected a much higher winter wheat area, but more growers are opting to hold back until spring.  This shows in the figures.  Also, the lack of confidence in oilseed rape is demonstrated by the continued rapid decline in its cropped area, almost all of which is winter planted.

The Early-Bird Survey is undertaken each autumn to assess national cropping intentions.  It is carried out by The Andersons Centre with the help of the Association of Independent Crop Consultants (AICC) and other agronomists.  Over 80 agronomists took part in this year’s survey contributing over 615,000 hectares of arable land stratified across all regions of Great Britain.

UK Arable Situation

Whilst the barn is not as full as most years, because of low cropped areas and poor yields, those whose wheat remains unsold have been making money from it.  In fact a tonne of wheat has risen by £25 per tonne since harvest.  This means,  for an average yielding hectare of a meagre 7.2 tonnes this year, a rise of approaching £200 per hectare.  That sounds easy, but of course, a large percentage of the wheat never got drilled, and probably, a greater percentage of it than usual was forward sold.  Nevertheless, it is some comfort for those holding stocks.  The AHDB’s Cereal Quality survey confirms the proportion of quality wheat (full specification) is lower than usual too at 32% compared with the 5-year average of 37%.

Feed barley remains at a hefty discount to feed wheat of over £40 per tonne, with lots sloshing around the system.  Not only did the total barley area come close to the wheat area, but the malting varieties in East Anglia averaged high nitrogen levels (1.89%), slightly above the standard for export brewing (1.85%) meaning much is feed barley grade.  Nitrogens were lower in Scotland.  French malting barley is excellent this year.

This time last year, we reported how the British drilling season had halted with only half the winter crop in the ground, many farmers having shut up shop till spring, and many with serious concerns about flea beetle in their oilseed rape.  Conditions have been substantially better this year, but still not great.  Whilst not as wet as 2019, rain has caused several disruptions and drilling is a few percentage points behind where farmers would ideally like to be.  Some establishment has been slow because of waterlogged soils, especially in the heavier land areas.

We also mentioned some farmers had publicly stated they would not grow oilseed rape again.  This does appear to have been carried out, with perhaps even less OSR planted than was harvested in 2020 (quite a drop, because as much as a quarter was written off before harvest).  Establishment is quite good, but on the basis that every year now, some will be lost, we could have an OSR harvest smaller than we have had since the 1980’s.  In terms of planted area, it will remain larger than oats, pulses and maize, but OSR is of less importance in the UK rotation now than just a few years ago.  Pulses appear to be compensating for the lost area, but only partially, with other changes such as increases in second wheats and oats (particularly spring).

Pulses are have a small surge in popularity, both on the back of the point made in the previous paragraph, but also as new crop prices are strong, especially peas.  Both Blues and Marrowfats are offering excellent prices for those who can get a contract and a half decent clean yield at circa £270 and £320 per tonne respectively.  Old crop premiums are not as good though.