Tag: wheat

Global Grains

Grain markets have been increasingly volatile in July, driven once again by the Black Sea.  US maize crop conditions have improved, but weather concerns still linger.

Ukraine/ Russia

The renewal, or lack thereof, of the Black Sea Grain Initiative (BSGI) has been a key watchpoint for grain markets for the past year.  The agreement, guaranteeing the transit of agricultural commodities, broke down on 17th July 2023.  The ending of the BSGI, came with missile strikes at the port of Odessa, and threats of military action against vessels delivering cargos to Ukraine.

In response to the ending of the BSGI, and subsequent concerns about global grain availability, UK feed wheat futures have been more volatile.  Between 17th July and 19th July UK feed wheat futures (November 2023), gained more than £16 per tonne, before falling back by £5 per tonne.

The lack of the BSGI and exports through a key port such as Odessa is undoubtedly a challenge to global grain availability.  However, reports from key commentators highlight the important role of the Danube and exports via Constanta, Romania, have played, and will continue to play, in keeping grain moving.  An increase in Ukrainian grain being exported by road, rail and waterways through Eastern Europe could cause downwards pressure on grain prices in the countries bordering Ukraine.  Some Governments have already placed restrictions on trade – for example grain can only transit through their territories.

The movement of Black Sea grain will continue to be a focal point.  Further attacks on the Danube port of Reni lifted prices on Monday 24th July.

United States

Following last month’s update, the US Corn Belt has received much-needed rain.  Drought as the crop moved towards silking negatively impacted crop conditions and was a risk to yield prospects.

Yield forecasts have been lowered but remain at record levels due to high planted areas.  While weather remains a risk to the crop, the global supply and demand balance is little changed.  In July, the USDA increased the area of maize it expects to be harvested by 900 thousand hectares.

The increase in the area of maize comes at the expense of soyabeans, with the area expected to be harvested falling by 1.6 million hectares.  The cut to the soyabean area has added significant support to the wider vegetable oil complex, including rapeseed.

Hotter weather and less rain is forecast in the Corn Belt through the first week of August so conditions remain uncertain.

Global Supply and Demand

The latest global supply and demand figures highlight the continued view from the USDA that the world will be better supplied with grain this coming season.  But there is a diverging picture between maize and wheat.  Global maize stocks are forecast to grow by 17.8 million tonnes year-on-year. Meanwhile, wheat ending stocks are forecast to fall by 2.8 million tonnes; to the lowest level since 2015/16. Wheat production was estimated to decline further in July’s USDA World Agricultural Supply and Demand Estimates, driven by month-on-month declines in Argentina, Canada, and the EU.

UK Grain Markets

The barley harvest is underway in England, although progress has been stop-start due to regular rain.  According to the Environment Agency, in the month to 18th July, England had received 111% of the long-term average rainfall for July.  As well as increased lodging in barley and OSR, the higher rainfall will be causing some concerns around grain quality.

With large ending stocks from the 2022/23 season anticipated, and the UK not currently export competitive, the price of feed barley has continued to fall.  So far in July (to 21st July) feed barley has averaged £146 per tonne, down £10 per tonne on the June average.  Initial assessments of malting crop quality have seen lower retentions (percentage of sample retained when passing over a 2.5mm sieve – minimum typically 85-90%) .  This has reportedly led some maltsters to lower intake standards for the current crop.

Feed wheat prices have increased latterly, due to the ending of the Black Sea Grain Initiative.  Ex-farm feed wheat (nearby) was quoted at £180 per tonne, on 21st July.  Milling wheat was worth £243 per tonne.

Oilseed rape values have also increased, with Paris rapeseed futures briefly exceeding €500 per tonne for the first time since March.  Ex-farm oilseed rape was quoted, on 21st July; at £385 per tonne, up from an average of £330 per tonne in June.  Price increases have been driven by the tightening of soyabean markets, and concerns over availability of Ukrainian oilseeds.

Pulse markets were also stronger in July.  Human consumption demand has remained somewhat limited, with difficulties in accessing North African markets.  However, some feed compounders have reportedly included pulses in rations, with global protein values increasing.  Feed beans and feed peas have average £259 per tonne in July.

UK Arable Outlook

As harvest draws nearer, UK wheat prices have increased, supported by concerns for US maize and prolonged dryness in Northern Europe (see preceding article).  In the week ending 23rd June 2023, ex-farm feed wheat was quoted at £175 per tonne; up almost £15 per tonne on the beginning of the month, but still just behind the May average of £176 per tonne.

AHDB Corn Returns data shows a positive carry into new crop prices, with feed wheat for September delivery averaging £196 per tonne in the week ending 22nd June.  Milling wheat continues to command a strong premium of nearly £66 per tonne, with the price quoted at £241 per tonne, ex-farm.

Barley prices have not gained to the same degree as wheat prices, up £8 per tonne on the beginning of June.  Ex-farm barley is quoted at £156 per tonne – demand for old crop feed barley has increased slightly but remains slow.  The UK is currently not competitive into export markets.  This could continue to pressure prices with a large carryout expected from harvest 2022, and barley now ripening and harvest not far away in the South and East.

Oilseed rape values had strengthened through June, reaching £346 per tonne in the middle of the month, before falling again.  Weaker than expected biofuel mandates in the US pressured soyabean oil prices, dragging the wider vegetable oils complex lower.  Subsequently, ex-farm oilseed rape was quoted at £326 per tonne on 23rd June.

Pulse prices picked up during the month with some renewed demand, but selling reportedly remained limited.  Both feed beans and feed peas were quoted at £241 per tonne, on 23rd June.

Global Grain Supply & Demand

Global grain and oilseed markets have continued to fall over the past month.  A large driver of the drop in wheat prices was the renewal of the Black Sea Initiative.  The deal was renewed for a further 60 days on 17th May 2023.  The shorter deal length drives greater uncertainty for the global supply chain.  The deal now runs until 18th July 2023.  There were moments during the last 60-day period where an extension seemed less likely; this resulted in temporary price spikes.

The renewal of the Black Sea Grain Initiative comes at a time when forecasts of Russian wheat production have increased, also pressuring prices.  Whilst the Black Sea Grain Initiative is vital to market direction, we also must pay attention to the underlying supply and demand fundamentals.

In May, the USDA released its first estimates of 2023/24 global grain supply and demand.   In contrast to the International Grains Council (IGC) forecasts, the USDA sees a softening of the grain balance, year-on-year, with significant maize stock growth offsetting a fall in wheat stocks.  The IGC’s updated 2023/24 forecasts show a further tightening of the global supply and demand.  The chart shows the USDA figures with production exceeding consumption.  It also translates this into year-end stock figures.  Whilst, on the headline stock figures, the world looks well-supplied with grain, taking China out of the calculation shows the world is in a far tighter position.  China tends to hold its stocks for strategic rather than trading reasons and they don’t really contribute to the availability of grain to the rest of the world.

The US and Global maize crop are an important element of the softening USDA supply and demand picture.  Maize production is expected to increase by 69 million tonnes globally, and stocks by 15 million tonnes.  The US alone is expected to account for 39 million tonnes of the production increase, while seeing its stocks rise by 20 million tonnes.

The US maize crop is currently 81% planted (week ending 21st May).  Crop conditions will need to be watched closely for their impact, either positive or negative, on crop potential and so, price. At present the outlook for maize in the US remains positive.

In Europe there have been contrasting weather conditions.  Conditions have generally been favourable in Northern Europe, albeit with too much rain during spring planting.  However, prolonged drought in Spain is causing concern.  Grain yields in Spain are forecast to be down by 30-40% against the five-year average, by the EU Joint Research Centre.  This may support demand for UK barley exports.

UK Grain Markets

UK cereal and oilseed pricing continues to face pressure from global market conditions.  Ex-farm feed wheat (nearby) was worth £179 per tonne in May.  This is down £9 per tonne on the April average price.  The price of feed wheat has now fallen more than £40 per tonne since January.  Milling wheat continues to hold a strong premium over feed wheat, extending to £70 per tonne on average in May.  Feed barley prices averaged £165 per tonne in May, with the discount to wheat narrowing.

AHDB published its latest UK supply and demand estimates for the 2022/23 season. The estimates highlight the increased ending stocks for both wheat and barley. Large cereal crops from harvest 2022, have been met with weak animal feed demand. The ongoing challenges for the pig and poultry sector resulted in a further cut to wheat demand of 130Kt.

The challenges for animal feed demand will carry into the new season. With large carry-in stocks and crops generally looking healthy, domestic prices will need to remain export competitive.

The value of Oilseed rape has fallen to the lowest point since October 2020, at £345 per tonne ex-farm in May.  Prices have continued to fall throughout the month, reaching £330 per tonne, delivered into Erith, on 24th May.  Oilseed rape prices are being undermined by large EU carry-in stocks for the new season, with the EU expected to harvest its largest OSR crop since 2014 (20 million tonnes).  Wider oilseed market fundamentals are also pressuring OSR prices, with the USDA forecasting a 40 million tonne increase in soyabean production in 2023/24.

Bean and Pea prices have bucked the trend of other combinable crop markets, with both commodities gaining £7 per tonne, month-on-month.  Feed beans were quoted at £228 per tonne and peas £234 per tonne.

Grain Market Update

In February’s Bulletin we highlighted that the fast pace of imports of Ukrainian crops into the EU was pressuring prices.  This came to a head in April with Poland, Hungary, Bulgaria, Romania, and Slovakia announcing bans on the import of Ukrainian agricultural goods.  The EU has proposed measures to guarantee that crops moving into those nations are re-exported and do not remain in those five domestic markets.  In addition, the EU has proposed the provision of €100m to compensate farmers in those nations.  At present there is no agreement on whether this deal will be accepted.  The news of the bans initially supported prices, but they have subsequently fallen.

Further uncertainty for grain markets has been caused by the 60-day terms the Black Sea grain corridor now operates under.  Comments suggesting the G7 would ban exports to Russia, were reacted to by former Russian president Dmitry Medvedev with suggestions of the Corridor agreement being scrapped in retaliation.  This has served to support grain prices in the short-term.  Overall, the situation in the Black Sea remains a dominant driver for grain and oilseed markets.

Looking ahead to the global supply and demand picture for next season (2023/24), the global grain stocks picture was eased slightly in the latest International Grains Council supply and demand figures, owing to greater maize production, particularly in the US.  That said the overall picture remains tighter year-on-year.  With weather concerns in part of the US, particularly for wheat, any adverse weather would support prices.

UK grain prices moved higher following the uncertainty around Black Sea grain movement.  UK feed wheat (ex-farm, nearby) was quoted at £190 per tonne in the week ending 21st April.  This is up around £8 per tonne on the month.  The milling premium also extended slightly, quoted at £61 per tonne.  Feed barley has struggled to find demand in 2023 but has been able to compete into export markets recently.  The feed barley price was quoted at £170 per tonne, on 21st April.

Oilseed rape prices have fallen since the start of the year.  However, concerns around dry weather in Argentina has continued to cut soyabean production forecasts supporting the wider oilseed complex.  Oilseed rape prices have risen by nearly £30 per tonne, month-on-month, to £380 per tonne.  That said, expectations remain for bigger global rapeseed crops in 2023/24.  Also, a bumper Brazilian soyabean harvest is expected which adds pressure vegetable oil markets.  Oilseed rape prices may be supported in the longer term with the EU Parliament backing a ban on imports linked to deforestation, including palm oil and soya. Companies selling into the EU will now have to provide verifiable information that goods were not grown on land which has been deforested after 2020.

Pulse prices have been stable month-on-month, with pea and bean prices unchanged at £226 and £220 per tonne, respectively.

The last month has been a busy one for the majority of arable farmers, the wet conditions of March have led to a backlog of planting and spraying.  While April conditions have not been ideal they have at least allowed field work to continue.

Black Sea Grain and Global Markets

UK feed wheat futures contracts for May-23 and November-23 delivery dropped by £31 and £20 per tonne respectively between 1st March and 23rd March.  Declines have been driven by the renewal of the Black Sea grain corridor and good prospects for EU crops.

The Black Sea grain deal allowing shipments of grain from Ukrainian ports (mainly Odessa) has now been renewed, but only for 60 days.  Previous extensions have been for 120 days; the shorter agreement length means commodity traders will have to contend with a greater degree of geopolitical uncertainty.  That said, the continued transit of grain through the Black Sea is bearish for grain pricing.

Old crop (May-23) futures rallied by almost £10 per tonne on Friday 24th March, on suggestions that Russia would not grant export licenses for shipments below a certain price.  Theoretically this sets a floor to old crop grain prices.

The International Grain Council (IGC) published and updated forecast for 2022/23, and its first estimates of global grain supply and demand for the 2023/24 season.  In 2022/23 (harvest 2022 in the UK) the supply and demand situation is seen softening, with growth in ending stocks driven by reduced consumption.  However, for 2023/24 the grain market is projected to be tighter year-on-year – again driven by consumption.  The level of global grain ending stocks is forecast to fall by 5.4 million tonne year-on-year.

With concerns already for the lack of rainfall in parts of the USA and the EU any adverse weather for the 2023/24 crop would support prices.  The first wheat condition reports in the USA are due in early April, alongside the first update on maize plantings.  Early yield estimates for the EU suggest a 3% increase for wheat, versus the five year average.

UK Grain Market

Cereal prices in the UK have followed the direction of EU and US markets over the past month.  Ex-farm UK feed wheat was quoted at £182 per tonne, on 22nd March 2023; this is a fall of £36 per tonne from the beginning of March.  All cereal prices will have recovered some of this lost ground to the end of the week, but remain pressured.  The potential for further downside movement will depend on domestic and global crop conditions.  That said, if Russian rumours of a minimum price for exporting materialise there may be a new floor in the old crop market.

The milling wheat premium remains strong, in spite of cheaper fertiliser, at £56 per tonne over feed wheat.  Whilst fertiliser prices have fallen owing to large domestic and EU stocks, many arable businesses will have bought cover for this season months ago, at much higher pricing.  As such, the sharp decline in crop pricing will have a significant negative impact on potential returns for harvest 2023 (as shown by the budget for Loam Farm in the following article).

Feed barley prices continue to decline owing to a lack of demand both domestically and for export.  The value of ex-farm feed barley had fallen by £32 per tonne, from the beginning of March to 22nd March, in an attempt to remain export competitive.

Oilseed rape has seen by far the largest declines in price, since the beginning of the year, the value of ex-farm oilseed rape has dropped by £145 per tonne, to £350 per tonne.

Pulse prices have declined to a lesser extent than cereals and oilseed rape.  Feed beans and peas were quoted at £220 and £226 per tonne, down £32 and £16 per tonne on the month.

UK Grain Market Update

UK feed wheat prices followed European grain markets in February.  Values increased through the first three weeks of the month, before falling on weak EU import demand.  UK ex-farm feed wheat was quoted at £224 per tonne, on 24th February 2023.  This is up almost £11 per tonne on the end of January, but down £9 per tonne on the week ending 17th February.  Milling wheat continues to attract a strong premium of £57 per tonne.

The discount of barley has extended further.  Feed barley was quoted at £203 per tonne on 24th February, an increase of just £2 per tonne on the month.  Demand for barley for both feed and export remains poor.  Data from AHDB shows that animal feed production in July to December 2022 was down more than 5%.  Larger declines were seen for pig and poultry feed, down 12% and 9% respectively over the same period.  Usage of barley was down nearly 23%.

The value of oilseed rape was supported by rises in the value of wider global oilseeds throughout much of February.  Whilst prices fell towards the end of the month, ex-farm oilseed rape was quoted at £463 per tonne on Friday 24th Feb.  Prices are up on values at the end of January, but £30 per tonne down on the beginning of 2023.

The price of feed beans has continued to fall in February, at £243 per tonne, with poor demand.  One merchant commented on the difficulty in establishing new crop values also, given lack of trading activity and demand.  Pea prices have remained stable month-on-month, at £249 per tonne.

While output prices have fallen towards the end of February, so too have costs.  The price of ammonium nitrate for March delivery was quoted at £460 per tonne; a significant fall from the £700 per tonne quoted in January.  The impact of this on arable businesses will clearly vary greatly for the 2023 harvest, depending on the level of cover.  However, it is a promising sign for harvest 2024.

Rainfall in February was below average in many parts of the UK.  Whilst there is evidently ample time between now and harvest, there are have been some concerns expressed about these drier conditions, particularly given the droughts of last summer.

 

 

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.