Tag: wheat

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.

 

Global Grain Update

Global grain prices have been falling for much of 2024.  The main driver of the decline has been ample supplies of grain anticipated to come from South America.  Maize and soyabeans in Argentina and Brazil are still developing, making prices volatile in response to weather conditions.  Concerns over excess rainfall in the region prompted some fund managers to cover some of their record sold positions, supporting prices in the third week of March.  The role of fund managers in Chicago grain and oilseed futures markets is important for the direction of global prices.  If weather conditions turn, or other funds become more or less attractive the price of grain can move quickly.

With regard to supply and demand, the International Grains Council (IGC) published its latest update for the 2023/24 season, on the 14th March.  Furthermore, the IGC also published its first forecasts for 2024/25. These are shown below.

Despite cuts to global grain production in the Southern Hemisphere for the 2023/24 season, there is a greater fall in estimated consumption, resulting from reductions in feed use.  As a result global stocks are forecast to increase by 10 million tonnes.

For 2024/25, the global grain and soyabean stocks are due to rise again.  Whilst an increase in stocks is likely to move prices lower, the year-on-year rise is fairly small.  We are still some months away from the Northern Hemisphere harvest, and it would not take a big reduction in production (forecast or actual) to move global prices higher.

For the 2024/25 season, total grains production is forecast to rise by 28 million tonnes, 10 million tonnes of that rise is wheat.  Increases in wheat production are projected for Argentina, Australia, Canada and the USA.  Production is expected to fall in the EU, and the Black Sea.  However, usage of wheat is set to remain high and global stocks are forecast to fall by 5 million tonnes between 2023/24 and 2024/25.  This may provide some specific support to wheat prices.

UK Planted Area Update

Rainfall in the UK between August 2023 and February 2024 is the second highest for the period since records began in 1837.  This has caused major challenges for crop planting for the 2024 harvest.  In December, AHDB published the Early Bird Survey showing planting intentions for the coming year.  With weather issues continuing the Survey has been re-run capturing planting intentions up to the end of March.

Wheat planting is down 15% on the year at 1.46 million hectares; this includes a significant increase in spring wheat planting.  In 2019/20, the last seriously wet planting season, spring barley area increased considerably to pick up the slack.  The area of spring barley is forecast to increase for harvest 2024, to 881,000 hectares.  The oat area is also forecast to increase in response to the challenged winter planting conditions, with farmers seeing spring oats as an option.  The oat area is forecast at 208,000 hectares, an increase of 26%.  These spring cereals plantings are only the intentions of farmers.  The weather over the next few weeks will determine whether these intentions can be turned into actions.

Oilseed rape has also been challenged significantly, both by poor establishment conditions and increased pest pressure, notably from slugs, in the autumn.  The result is a 28% decline in the area likely to be taken through to harvest at 280,000 hectares.

One of the most notable increases this year is that of arable fallow, up 79%, to 558,000 hectares.  This area is will include a proportion of land which will be placed into environmental schemes.

Area figures only give a part picture of the state of cropping in the UK this season.  Whilst areas of winter crops are down there are significant area of crops in poor or very poor condition.  Very little of the poorer quality crop will be re-drilled, as such it will be carried forward with lower yield prospects.

Arable Roundup

Grain prices fell considerably during February.  The May-24 UK Feed Wheat Futures contract started the Month at £175 per tonne, as of 24th February the same contract was worth £164 per tonne.  It is a similar story for the 2024 crop, with November-24 Futures £9 per tonne lower on the month.

The direction of the UK market is driven by the availability of global grains.  Concern had been building about dry conditions in South America hindering planting progress.  However, both Brazil and Argentina have received rainfall and planting of maize and soyabeans has progressed.  Argentina is forecast to harvest an additional 22.5 million tonnes of maize in 2023/24 compared to 2022/23 (when it was affected by a widespread drought).  Brazilian grain and oilseed production forecast have fallen.  However, the country is still expected to harvest a combined 300 million tonnes of cereals and oilseeds; the second largest harvest on record.

Furthermore, grain prices are weighed down by cheap Black Sea wheat, slow US grain and oilseed exports, and the large sold position held by speculative traders in US grain futures.

Looking ahead to the 2024 UK harvest, the window of opportunity for further winter wheat plantings, prior to latest safe sowing dates, is closing.  Heavier ground is still sodden, especially across the East Midlands.  Crops on lighter land look far better.  UK growers face the prospect of smaller crops being sold at lower prices.  The poor outlook for the 2024 harvest is increasingly accounted for in grain prices.  Looking at the gap between old crop and new crop wheat futures (May-24 versus November-24), the new crop is worth almost £19 per tonne more that the old crop.  This time last year the November crop (November-23) was worth just £3 per tonne more than the old crop (May-23).

UK Feed Wheat Futures Chart

Source: AHDB

Farmgate grain prices have reflected the wider trend in futures, as shown in Key Farm Facts.  The UK still has ample old crop wheat and barley stocks, with prices uncompetitive into export markets.

UK Arable Market

Whilst the weather might have slightly improved since the storms of October, ground conditions have not.  With many fields, particularly in the Midlands, still having standing water on them, the opportunity for winter cropping is falling.  In addition, there is the challenge of planting behind root crops and maize, still to be lifted/ cut.

The AHDB has published an updated Early Bird Survey estimate of cropping this month.  This shows that, before the bulk of the poor weather, farmers planned to plant 3% less wheat for harvest 2024.  Given the unfavourable conditions since that survey was conducted the decline in area is now likely to be far greater.  Industry sources suggest a fall of around 15% and this is contingent on significant areas of wheat being planted in January and February.

Whilst area may be down 15%, further questions will be asked of yield.  Some fields that were drilled prior to the storms are patchy and will yield lower.  Time will tell as to how the UK wheat crop will perform on average.

With a reduced area and likely lower yields, we will see a smaller wheat output from harvest 2024.  Prices for post-harvest 2024 will need to be high to encourage grain to be carried through from harvest 2023.

There are limited buyers of 2023 harvest grain at the moment.  This increases the amount of grain which could be carried into the new season.  If the trade is already working to 15% drop in crop area, the ability of prices to increase will be limited.  Also, it is important to remember that the global market will ultimately dictate UK price direction.

With an expected decline in winter cropping, attention will turn to spring cropping.  Certified spring seed availability is reportedly very tight, and prices are reflecting this.  Increases in spring barley are inevitable, but we have seen the impact of large increases in spring barley before.  There is only limited demand for malting barley, and, as such, those without a contract will need to pay close attention to the feed market.

The situation is not as severe as 2020, at the moment.  Wet weather during the planting window in 2019 resulted in a 24% drop in wheat area, and 19% increase in barley.  The result of this cropping change was an increase in the discount of feed barley to feed wheat of £26 per tonne, season-on-season.

With the drop in winter plantings, and price risk in barley markets, it is also likely we will see a noticeable increase in the area of oats, pulses, and possibly some land going into SFI.  It is important to pay close attention to margin impacts of any cropping changes, as well as considering the future impact of placing a proportion of productive land into an environmental scheme for a three-year period.

Grain Market Update

Like the water sat on many headlands around the country, old crop wheat markets could rightly be described as stagnant!

Looking back across the May-23 UK feed wheat futures market, prices have been stuck in a channel from £194 to £204 per tonne since the beginning of September.  Prices are sitting in the bottom of that band presently and showing little sign of moving back towards the top.  This is partly driven by readily available Black Sea grain, keeping prices pressured.

The old crop market is also influenced by a large global maize crop, with the US harvest all but complete.  In November, the USDA added a further four million tonnes to its production forecast for the US, citing improved yields.  In total a further 2.5 million tonnes have been added to global maize ending stocks, compared to October’s forecast.  Ending stocks of maize, globally, are up 15 million tonnes year-on-year.

The new crop market is more interesting, unless you are looking out on waterlogged crops.  Poor weather conditions have led to estimates of a 5-10% decline in wheat area across the UK, France, Germany, and Ukraine (Openfield).  This is driving an £11 per tonne premium for November 2024, over current May prices.  Concerns are built into new crop pricing.  It will take a worsening of conditions to keep prices supported.

In the UK, grain markets are lacking activity.  There are reports of weaker demand for bioethanol production.  UK wheat prices are uncompetitive in export markets and prices are under pressure (see Key Farm Facts).  Milling premiums remain elevated.

Feed barley is at a more than £20 per tonne discount to feed wheat.  However inclusions in animal feed rations are already high.  As such, barley prices need to be competitive into export markets to generate extra sales.  Old crop malting barley premiums remain high.  With concern over winter wheat plantings, and a subsequent increase in spring barley plantings likely, new crop premiums may be lower.

Oilseed rape prices are benefitting from uncertainty over planting of soyabeans in South America.  The north of Brazil remains very dry, while planting progress in the south of Brazil has been delayed by heavy rains.  The pace has improved towards the end of November but remains behind average. While this is supporting oilseeds now, it could also hinder the maize plantings which follow soyabeans in spring, offering future support to grains.

Wheat Area Down in UK

The area planted to wheat in the UK is expected to fall by 1.3% according to the results of the annual AHDB Early Bird Survey of UK planting intentions.  The survey, conducted by The Andersons Centre with the support of the AICC and other agronomists, captures a snapshot in early November.  This is a crucial caveat to the survey, in that it reflects the time before storms Babet, Ciarán and Debi.

Irrespective of the conditions of the storm, winter plantings were already expected to decline owing to the wet conditions which have persisted since harvest.  The area planted to winter barley is expected to fall by 6%.  Much of the fall in winter cropping will be replaced by spring barley (forecast up 13%) or oats (up 12%).

With prices having tumbled from their post-Ukraine invasion high, it is no surprise to also see the area intended to be planted to OSR falling by 16%.  This will also include a proportion which has already been written off, with flea beetle and slugs enjoying the mild post-planting weather.

Time will tell as to whether all the wheat area intended is planted.  Weather conditions between now and mid-January will be pivotal.  In addition, close attention needs to be paid to the condition of crops in the ground (see accompanying article).

A further update, with regional detail will be produced in mid-December, once Defra publish a full UK crop area figure.

Crop Conditions Update

It has been a challenging start to the 2024 season for many, to say the least.  Persistent rain during and post-harvest has been followed by storms Babet, Ciarán and Debi, leading to some crop casualties already.  For many, this year has marked the most significant challenge to the drilling campaign since 2019, although rainfall has largely been less persistent.

Andersons has compiled a crop condition assessment for the AHDB, summarised below in the order of planting.

Winter Oilseed Rape

Generally, the winter OSR crop can be split into three groups according to when it was planted.  The earliest established crop is generally in good condition, having rooted into good moisture and developed well to stave-off pest pressure and subsequent rains.  If anything, some of these crops are too far forward.

Crops established around the August Bank Holiday went into drier seedbeds, owing to the one week of very hot weather this year.  These crops are in far worse condition, with cabbage stem flea beetle migrating at a similar time.  Slugs have also been a significant issue, with mild evenings and wet weather.  Many regions have already written off considerable areas.

The final group is the late-August/early September crop.  This has generally established well, although root development was hampered by colder conditions and the crop isn’t as far forward as it should be.  It remains to be seen how these crops get through the winter given some of thier poor rooting.

Generally, more OSR will be written off this season than normal.  In addition, CSFB pressures are being seen further North and West than in a typical season.

Winter Barley

The winter barley crop was generally looking good, up until recent rainfall, having been established in reasonable conditions.  That said, with some crops sitting in water-logged soils, yellowing has been seen.  Crops should recover, although if biomass development is hindered,yield prospects may be too.

Given the moisture this autumn, good, stale seedbeds and weed control were achievable for many. Hopefully this will result in lower grass weed pressure than last year.

Winter Wheat

Wheat is undoubtedly the crop of biggest concern.  Whilst the AHDB Early Bird Survey estimates a planted area of 1.698 million hectares, much of this will have been either undrilled or not very well established by the time the rains hit in October and November.  Typically, by the end of October we would expect much of the winter wheat crop to be planted.  Regional estimates of planting vary from 70% to 85% on average.

Concern over the potential for crop failure is reported across many regions by businesses of all sizes. Some of the worse hit wheat is in the Midlands and the North East, where there is expected to be a degree of write-off.  What this crop is replaced with remains to be seen and will depend on how much of a field is written off.  Where headlands and wetter patches are affected, there may be an effort to re-establish wheat.  Failing that, a rise in fallow, or generally thinner, patchy, low-yielding crops are to be expected.

Pest pressure for wheat has also been considerable, with reports of the worst slug damage some have seen for 10 or more years.

Grain Markets

Global Grains

Global grain markets are largely unchanged on the month.  There has been some short-term support, but there is a distinct lack of news to sustain any price increases.  Both the USDA and the International Grains Council (IGC) published their latest world grain and oilseed supply and demand estimate updates.  For grains, both organisations made downward revisions to global ending stocks, the USDA by 2Mt and the IGC by 6Mt.  In both cases the downward revisions come from reductions to maize stocks.  That said, the month-on-month reductions to the outlook are a drop in the ocean relative to the forecast 60 million tonnes of stocks.

With the US maize harvest 59% complete, the next important drivers for grain and oilseed markets are likely to come from the southern hemisphere.  The picture in Brazil is split, where excess rainfall in the south is delaying soyabean plantings, whilst more rainfall is needed in the north of the country.  If this continues it has the potential to support soyabean and so rapeseed prices.  Beyond this, attention will turn to South American maize planting.

UK Market Update

It’s been a challenging drilling window for many so far this year.  Whilst the autumn has been mild, the stop-start rains which prolonged harvest have continued.  Reports suggest that pest pressures are increased, particularly for oilseed rape with both flea-beetle and slugs a problem.  The relatively mild weather has seen widespread flea-beetle damage in rape crops further north than usual.  In addition, storm Babet left many fields, particularly in the Midlands, East Anglia and Scotland under water.

As with the global market, UK wheat prices are relatively unchanged month-on-month.  There are odd opportunities to benefit from short-term spikes.

The AHDB published its ‘Early’ Balance Sheet for the UK wheat and barley market.  For wheat, whilst the carry out stocks from last season are up significantly (9% year-on-year), AHDB estimates the 2023 wheat crop to be significantly smaller (14.1Mt).  This is due to a much smaller planted area than had been expected.  Consumption of wheat is also seen increasing, with both ethanol plants expected to remain operational.  There is also expected to be a switch from barley to wheat for some animal feed compounders.  With a smaller pig herd and poultry flock and reports of reasonable forage production for ruminants, there will be questions over the level of animal feed demand this season.

The UK wheat market is left in a broadly similar position as it was in the 2021/22 season. However, the lack of support in global markets and little domestic activity is keeping prices subdued.  Defra will provide another update on the size of the UK wheat crop in December.

For barley, large opening stocks and decline in animal feed demand are expected to outweigh the drop in production year-on-year.  As a result the UK is expected to have 1.5 million tonnes of barley which will either be held as stock or exported.  Small volumes are moving, but there are currently cheaper origins than the UK for barley.

Whilst feed markets may be under pressure, there continues to be strong premiums for milling wheat and malting barley.  Milling wheat premiums are in the region of £65 per tonne and malting barley premiums have reached as much as £85 per tonne.  The importance of knowing and maintaining the quality in the barn cannot be overstated this season.

Pulse prices have remained firm against other combinable crops, although there are suggestions that feed beans and peas may be displaced by cheaper protein sources into animal feed.  The trade expectation is that prices will fall.

Grain Market Update

The August USDA World Supply and Demand Estimates forecast a slight drop in production relative to the July report.  This is driven by a reduced outlook for Canadian and European wheat production.  Additionally, US maize production forecasts were reduced slightly with lower yields expected, following results from a producer survey.  The sentiment for reducing supply and demand forecasts (month-on-month) is echoed by the International Grains Council who cut both production and stock forecasts for total grains.

Although estimates have been reduced, this years global harvest is forecast to be considerably larger than last years, putting downwards pressure on prices.  As harvests continue across the Northern Hemisphere, and better yield information becomes available, wheat prices have continued to fall.  Suggestions of large crops in Russia, and the ease of shipping costs compared to the same time last year has moved spot feed wheat prices lower after the late July spike.

In the UK, the changeable weather continues to result in a challenging, stop-start harvest, although progress improved at the end of August.  In the South and East, many businesses have now finished harvest for another year.  Reports suggest that both yield and quality are down on last year, with lower proteins and hagbergs a potential challenge for the milling supply chain.  Malting barley nitrogens are low, a positive; but bushel weights are also low.

In August, UK feed wheat values average just over £174 per tonne, down £4 per tonne on the July average.  Milling wheat values have also moved lower, down nearly £5 per tonne on the July average, at £237 per tonne.  There is still a considerable premium of milling wheat over feed (£62 per tonne) which will be supported if quality issues turn out to be correct..

The discount of feed barley to feed wheat has narrowed over the past month.  Reduced availability of the crop has pushed the discount to £22 per tonne on average across August, compared with £28 per tonne in July.  In the last week of August the discount was as narrow as £17 per tonne.

The supply and demand for oilseeds has also eroded prices this month.  There is larger availability of oilseed rape in Europe this season, with expectations of significant carryover into the 2024/25 season. The oilseed rape price averaged £349 per tonne in August, down from £362 per tonne in July.

The value of pulse crops has taken the biggest hit over the last month.   The price of feed beans and feed peas fell by £37 and £41 per tonne, respectively, mont-on-month.  With harvest underway greater availability.  Early reports suggested that quality has been variable.