Category: Arable

Arable Markets

A week is a long time in politics, and given their intertwined nature at present, so too in grain markets.  As the war in Ukraine enters into its second month, the impact on grain and oilseed markets has been considerable.  This is not surprising when we consider the reliance the world has on both Ukraine and Russia for grain and oilseed supplies.

The Food and Agriculture Organisation (FAO) of the United Nations held an extraordinary general meeting earlier in March, to discuss the challenge of the war in Ukraine.  The report from the meeting highlights 26 countries which rely on Russia and the Ukraine for more than 50% of their wheat imports.  Some of those nations will be relatively small importers.  However, it is worth noting Egypt, which imports more than 15 million tonnes of wheat annually.  Historically, 70% of Egypt’s wheat imports have been sourced from the Black Sea.  Whilst we can expect markets to be volatile long after the end of the war, much will depend on how the nations who rely so heavily on Russia align themselves politically going forward.

Farmgate grain prices have risen considerably over the course of the last month.  Nearby farmgate feed wheat was worth £292.90 per tonne on 18th March, up £69.40 per tonne from 25th February.  The value of farmgate prices has been driven by futures market volatility.  This is, in turn, making markets challenging to price.  Milling wheat prices have also seen increases, although the premiums over feed wheat have remained relatively stable.  Feed barley values have also increased considerably, following the direction of wheat markets.  Farmgate feed barley increased £67.90 per tonne from 25th February, up to £277.80 per tonne on 18th March.

Outside of the conflict in Ukraine, the grain market would likely be seeing support anyway.  Dry conditions over winter in the EU and US, will cause some concern on wheat markets.  Drought conditions are also seen in North Africa, if this persists, we can expect increased import demand globally.

Oilseeds prices have also risen considerably in recent weeks. Paris rapeseed futures (May-22) traded at more than €1,000 per tonne on 23rd March.  As with grains, there is a global reliance on the Black Sea for rapeseed and sunflower oil.  Ex-farm UK oilseed rape prices were quoted at £742.50 per tonne on 18th March.

Pulse prices have also gained over the last month.  However, the gain in the value of pulses has been limited compared to that in grains and oilseeds.

Sugar Beet Contracts

British Sugar has announced all contracts, irrespective of length, will receive at least £27 per tonne for the 2022/23 crop year.  On making the announcement. the processor acknowledged growers were currently exposed to significant cost inflation and that sugar prices were also rising.  It said it had worked closely with NFU Sugar to understand growers’ likely costs for the coming year, which had made it come to the conclusion that a guaranteed price was required to ensure sugar beet remained an economically viable crop for everyone.  The guaranteed £27 per tonne will apply to all contracts for the crop which is about to be planted.  Any growers with a fixed contract price below this amount will have it raised to £27 per tonne.  Those whose contracts include a market bonus element will received a guaranteed market bonus of £5.82, raising their price to £27 per tonne on delivery.  Any surplus beet for the 2022/23 crop will also be paid at £27 per tonne.

Neonics for Beet

Defra has announced that the ’emergency’ authorisation of Syngenta’s Cruiser SB seed treatment for sugar beet has been granted for this year.  Used to control Yellow Virus, our article of 25th January (see https://abcbooks.co.uk/neonic-beet-treatment/) detailed that the use of the neonicotinoid would be dependent on nine conditions being met.  This included an initial threshold for use, meaning the seed treatment can only be used if the predicted Yellow Virus incidence is at or above 19% of the national crop on 1st March.  According to Defra, following what has been a relatively mild winter, modelling on 1st March is predicting a 68% (!) level of virus incidence.  In 2018, 25% of the national sugar beet crop was lost to YV, with an estimated cost to processors and growers of £67 million.

Grain Market Roundup

As the conflict in Ukraine continues, the value of commodities has risen considerably. On Monday 7th March UK feed wheat futures (May-22) closed at £303 per tonne, a rise of almost £68 from 23rd February, the day before the invasion began. While prices have risen, daily movements have been volatile. Russia and Ukraine account for more than 28% of world wheat exports, as such developments in the conflict will have large ramifications for prices.

Despite the large rises in output prices as a result of the conflict, input prices are equally inflated. Russia is a key producer of fertiliser and exporter of fuels. The price of fuel is likely to stay inflated, with the UK and US governments announcing, on 8th March, their intention to ban Russian oil imports. The UK ban will be phased, Russian supplies of fossil fuels account for 8% of UK imports.

 

Outside of global politics, the International Grains Council (IGC) lowered its estimate of global grain stocks for the 2021/22 (current) season.  This was due to cuts in Southern Hemisphere maize production forecasts where dry weather is impacting on crop expectations.  This is also likely to be a continued driver of grain price rises.

Despite the factors globally which point to further grain price rises, we also need to consider the new crop (2022/23) when looking at the direction of grain prices.  The IGC has tentatively forecast an increase in grain stocks; as we move nearer to the new crop market the expected availability of the 2022/23 crop will have an increasing influence over prices. On 9th March the USDA is set to update its world supply and demand estimates, these will be watched closely.

In the UK, milling wheat premiums remain high relative to recent seasons.  Milling wheat premiums will be watched closely as we move towards spring in light of the high cost of nitrogen.  Feed barley prices have followed the same path as wheat prices, tracking lower through February before recovering.

Ex-farm oilseed rape prices have fallen back from their December high of £627 per tonne.  Rapeseed prices have responded to the incredibly tight UK, European and Global oilseed rape supply and demand.  However, prospects for the new crop are for improved supplies.  This will lead to lower prices than we have seen this year.  Of course, there is some time before the rapeseed harvest and the fundamentals still have time to change.  Soyabeans also need watching for the direction of rapeseed.  The dry weather in South America has supported soyabean prices and tightened the supply and demand outlook. The United Nations Food and Agriculture Organisation cut its estimates of South American soyabean production by 13.5 million tonnes (3.7%), earlier in March. A tightening of global vegetable oil and oilseed markets will lead to price rises.

Pulse prices remain flat through January and February, moving by just £1 per tonne across the last month.

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.

Gene Editing

Defra has recently announced it will be putting in place new legislation which will ‘cut the unnecessary red tape’ to allow Gene Editing (GE).  The legislation, laid on 20th January, will apply to GE plants only.  It should mean plant-based research and development using GE will be able to take place more easily.  GE is seen as a powerful tool to tackle food security, climate change and biodiversity loss through breeding plants that are resistant to diseases and climate change such as, sugar beet resistant to Yellow Viruses and climate-resilient wheat.

It is unclear just what the new rule changes will be, probably a relaxation in the licence and application process, but it seems to fall short of changes to the definition of Genetically Modified Organisms (GMOs) which was included in Defra’s response to a consultation last year (see Bulletin article https://abcbooks.co.uk/gene-editing-allowed/).  The recent announcement says ‘for now, GE plants will still be classified as GMOs and commercial cultivation of these plants and any foods derived from them will still need to be authorised in accordance with existing rules’.

GE currently falls under the definition of GMOs.  But GE is used to create new varieties, similar to those which would have been produced more slowly through conventional breeding processes, by manipulating the coding to speed up the development of desirable traits, in contrast to GMO, where genes have been transferred between species (transgenic).  It had been expected that the definition would be changed so that GE plants (and animals) would be taken out of the definition, but this does not appear to be the case ‘for now’.

 

 

Neonic Beet Treatment

Defra has granted an emergency authorization of Sygenta’s Cruiser SB seed treatment on sugar beet crops, in England, for the control of Yellow Virus (YV).

The emergency authorisation is dependent on nine conditions.  The conditions is the need for YV prevalence level, as predicted by the Rothamstead Research model, to be greater than 19% of area on 1st March 2022.  This is a much higher threshold than the 7% requested by the NFU in their application for authorisation.

Additionally,

  • Where Cruiser SB is used, the application rate should be a maximum of 75ml per 100,000 seeds. The label recommended volume is 100ml per 100,000 seeds.
  • Seed rates should not exceed 115,000 seeds per hectare, this is above the commercial rate.
  • As with last year’s criteria for emergency authorisation, no flowering crop can be planted in the same field within 32 months.
  • No further use of thiamethoxam can be used in the same field for 46 months.
  • An industry-recommended herbicide programme must be followed to limit flowering weeds in and around the sugar beet crop.
  • Treated seed must be fully incorporated in the soil and at the end of rows.
  • Treated seed should not be left on the soil surface with any spillages needing to be buried.
  • The authorisation can be withdrawn or amended at any time.

Defra granted an emergency authorisation last season.  However, due to low YV prevalence in March, neonicotinoid-based seed treatment was not used.  In 2018, 25% of the national sugar beet crop was lost to YV.  The estimated cost of losses to processors and growers in 2018 was £67 million.

 

Potatoes Update

Potato prices are higher than they have been for much of the last two seasons, but that has not brought much confidence among growers.

The demise of AHDB Potatoes means detailed production and stocks figures for the current season are difficult to come by.  Defra estimated a total 2021 potato area for the whole of the UK of 136,806 hectares.  That figure is taken from the June 2021 Survey and includes land included in declarations associated with potato planting, but which was not actually planted with the crop.  Taking that into account, the total UK harvested potato area was in the region of 118,750 hectares, down 0.7% on 2020 and the third smallest ever after 2019 and 2015.  Production is likely to have been in the region of 5.400 million tonnes, down 2.0% on 2020.

Prices are higher than last year, according to market newsletter Potato Call, but values have not soared.  Maris Pipers for packing make between £130 and £250 per tonne, while the best bagged chipping potatoes can also fetch £250 per tonne.

The big rise in fuel, fertiliser and energy costs could deter any increase in the 2022 potato area.  The very high cost of growing potatoes compared to other crops such as cereals and oilseeds, which are experiencing greater price gains, will probably mean a smaller potato area – possibly the smallest ever.  A crop of less than five million tonnes is quite possible, which could give support to prices during the 2022/23 season.

There has been a much greater price response to a tightening market in other parts of Europe.  The free-buy Dutch processing price has increased by 11% during January and is nearly 45% higher than at the beginning of the season.  There is still more room for increases – April 2022 futures prices on the EEX exchange are at €220 per tonne; €40 per tonne more than current physical prices.  Reduced production and a return to global demand for potato products despite high Covid cases are behind the strengthening market.

The trade of seed potatoes between the EU and UK is still restricted by post-Brexit rules that do not mutually recognise plant health rules in each territory.  The situation has been criticised by UK exporters to the EU and EU suppliers to the UK.  In 2020, before the rules came into force, a quarter of the 113,000 tonnes of British potato seed exported were to the EU.  The UK imported 11,500 tonnes of seed from the EU giving the UK an exportable surplus of almost 19,000 tonnes.  Sales of British seed to the Canary Isles – normally around 5,500 tonnes a year – continues because of the remote location of the islands.

Seasonal Workers Scheme

The Seasonal Agricultural Workers Scheme (SAWS) will continue for 2022 with the same number of places as last year.  However, it will then taper down in 2023 and 2024 and disappear completely by 2025.  The Government states that the sector needs to ‘focus on the domestic workforce’ and that ‘more must be done to attract UK workers through offering training, career options, wage increases and to invest in increased automation technology’.

There will be 30,000 visas available next year (the same as 2021), but this will be kept under review with the potential to increase by 10,000 if necessary.  The scheme is also being extended to the ornamental sector – previously it was only available in ‘edible horticulture’.  From 2023 the numbers will start to phase-down, although no details are provided on actual places available in 2023 and 2024.  The scheme is now named simply ‘Seasonal Worker’ as it was extended to cover pork butchery and lorry driving. 

This announcement has angered the fresh produce sector.  Not simply because it came out on Christmas Eve which gave the impression the Government wanted to hide it.  The statement that the sector simply needs to work harder to recruit staff from the UK illustrates a lack of understanding of both the labour markets and the economics of the fresh produce sector.     

2021 Harvest

Defra has released final production figures for the 2021 harvest.  These are not very different from the provisional ones we reported on in October.  The table below sets out the changes, along with a comparison with those from previous years.

The full statistics can be found at – https://www.gov.uk/government/statistics/farming-statistics-final-crop-areas-yields-livestock-populations-and-agricultural-workforce-at-1-june-2021-uk