Tag: Oilseed

Grain Market Roundup

Over the last month, the prices of UK wheat and barley have fallen.  This has been driven by an improved global supply and demand picture for wheat and a stronger Sterling.

Global Market Drivers

The USDA published its latest supply and demand figures early in January.  The report showed improved global stocks of wheat, including amongst the top exporters.  The picture for maize tightened globally, with forecasts of Brazilian production falling by three million tonnes, to 115 million tonnes.  However, the combined production of maize in Brazil and Argentina was only 0.76 million tonnes below trade estimates.

South American production of maize is still something to watch closely for price direction.  Rainfall has improved crop prospects lately, but Brazil and Argentina are forecast to experience drier conditions over the next few months which could hamper production, tightening global markets.

In the short-term global politics also need watching closely.  Tensions between Russia and Ukraine, and in Kazakhstan, have increased global wheat futures in January.  The three countries account for about a third of global wheat exports.  Any escalation or de-escalation of tension will impact prices.

As we move forward, grain prices are increasingly going to be driven by the prospects for next season.  The International Grains Council is forecasting that global wheat production will increase in 2022/23.  Stocks are forecast to stay relatively unchanged.

Domestic Markets

UK spot ex-farm feed wheat prices fell from £219.10 per tonne on 17th December 2021, to £213.60 per tonne on 14th January 2022.  As well as the global factors outlined above, the fall in prices was amplified by a 1.7% increase in Sterling against the Euro, over the same period.  Milling wheat premiums remain historically strong but have fallen back recently.

UK ex-farm barley prices also moved lower across the month.  The barley market is closely tracking wheat this season, with supply and demand in both markets tight.  Feed barley was quoted at £203.40 per tonne on 14th January, down £5 per tonne from 17th December.

Oats have moved against other grains over the past month.  The high price of other grains has increased the inclusion of oats in compound feed rations (to November) according to AHDB figures.  As a result, oats have closed the gap slightly to other grains, but remain at a significant discount to barley.

Spot ex-farm feed bean prices have been flat through January, at £246 per tonne.  However, reports suggest that Australia has sent large shipments to Egypt which led to price falls on increased competition.

Rapeseed prices surged again into the New Year.  Demand for rapeseed oil in the EU remained strong despite high prices.  Ex-farm rapeseed prices (spot) are now quoted at £613.20 per tonne. There is a significant discount into new crop, owing to better new crop prospects.

Grain Market Update

The UK had a record-breaking cereals harvest in 2019.  No records have been broken this year, perhaps apart from the percentage of oilseed rape written off or the percentage decline in wheat crop from one year to the next!

According to provisional Defra estimates, the total wheat and barley crop was over 18.5 million tonnes – nearly 6 million lower than last year, and all of that decline was because of less wheat (the fall in winter barley was more than compensated for by the rise in spring barley).

The chart shows the main combinable crop areas for the UK for a decade. Under ‘normal’ conditions, crop areas vary slightly from one year to another according to shifting market requirements and other economic influences as well as perhaps a small weather effect.  About once every 7 or 8 years, we see greater shifts in cropping because of inclement weather covering large proportions of the country.  That is not to say we can predict when the next weather event will be of course.

The change in the crop rotation was clearly dramatic, and the amount of resultant crops for marketing is equally unusual.  Whilst farms have a different make-up of the crops they want to sell, the market demands are much the same.  There is a mis-match, which will drive imports and exports to balance supply and demand and is also causing sharp price movements.   Prices for wheat have spiked in recent weeks, having risen by over £20 per tonne for since harvest.  The unusual market also explains why barley has not followed suit as it often does, instead, a price spread over £40 has emerged as evidenced in the graph below.

Demand for malting barley is slim, as Covid restrictions close pubs and bars throughout the country and beyond, reducing their already severely reduced requirement for beer.  The considerable pile of spring barley is finding ample buyers but for feed.  Prices have picked up a little but continue to trade at considerable discounts to wheat in many parts of the world. The new crop price spread is smaller but still £15 to £20 per tonne.  The figure below shows delivered feed wheat and barley prices in UK and illustrates the growing spread between the two crops.

The oilseed rape market for anybody who has any to sell, is thin and, as usual, is led not by OSR, but the soy and palm oil markets.  The lack of OSR in this country has very little impact on prices.  Global vegetable oils are highly susceptible to currency markets and political moves, particularly regarding the relationship between the US and China.  Brexit has little impact on the oilseeds markets as they have no tariffs.  Brexit negotiations affect these markets more because the strength of Sterling changes according to trade deal news.

The pulse trade is small at the moment having become slightly overpriced to other protein markets.  Overall bean quality is not great this year, lowering the overall crop value.

 

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.

Grain Commentary

In the midst of the Beast from the East, the chilling weather has already been cited as probably damaging crops (particularly winter oilseed rape) in Germany, Poland and the Czech Republic.  These countries have very little snow cover on their crops which can act as a protective blanket against very cold weather.  The USDA has also made its first prediction of US wheat area and crop size suggesting a small increase in US wheat production in 2018.  Strategie Grains has done the same for the EU (no change) and Kazakhstan (2% decline).  The Canadians, Ukrainians and Russians have done similar for their own crops (down  3% in Canada, down 4% in Ukraine, and down 9% in Russia).  The International Grains Council (IGC) has made its first global predictions.  Overall, the wheat area is thought to be declining slightly, maize increasing (but by less than the rise in consumption) and barley increasing marginally on the back of current positive prices.  Soybean production is thought likely to increase globally, but stocks fall as consumption continues to rise.

The area of US wheat is forecast to rise because of an increase in spring wheat area.  The overall winter wheat area is seen declining to a 109-year low of 13.2 million hectares with springs making up the difference.  A notable observation is that the overall yield is expected to increase, despite a rise in the proportion of spring wheat, and a write-off expectation of 17% of the planted wheat crop.

Oilseeds tend to take second fiddle in these announcements but are still important.  The main one, soybeans, accounts for 60% of oilseed output.  Whilst a small decline in production is expected in the US, a large carry-over in stocks means the availability of beans from the US is likely to be high.  On a global scale, the IGC suggested the global harvest would increase but with consumption rising, stocks would fall.  This is interesting as the Chinese have bought far less soybean from the US this year and much more from Brazil – which is now by far the largest exporter of soybeans to China.

The projection from the IGC suggests a fall in output of wheat and a continued rise in consumption, leading to the first decline in global stocks of wheat for six years.  The change is expected to be small (short of unforeseen weather extremes).  Global trade is also predicted to rise to a record level.  The Council also assumed an increase in maize consumption, leading to a second consecutive year of maize stock declines.  Whilst the US will be producing less, South America will step up and make up the difference with a small rise in production globally.  The IGC also expects a high barley crop in reflection of the current high prices.

Of course, much of these crops that have been forecast have not yet even been drilled.  From our experience here in the UK, planting intentions are rather different to final planted areas.  Furthermore, using average or trend yields is all a ‘spreadsheet-analyst’ can practically use at the moment which makes the predictions far from accurate.  From now on though, the attention on new crop will far outweigh old crop and so the fundamentals affecting both crops will start shifting.  By next month, the amount of 2017 harvest left un-committed and un-priced in farm barns will be rather small.

Domestic barley prices have been buoyant this winter and are currently as high against wheat as at any time, with feed barley actually priced higher than feed wheat in some UK locations.  This is unusual as it has less nutritional value than wheat.  Wheat milling premiums have come down over the last month.  For a period after harvest, milling premiums remained steadfastly high, but have since fallen as markets realised that the overall tonnage means ample is available for millers to choose from.  The UK pulse market will be slowing down from its current snail’s pace over the coming month as new supplies will be offered to Egypt from the Australian harvest.  Similar might happen with oilseed rape too.