Category: Arable

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

Arable Prices Fall

Prices for UK arable crops have fallen lately, pressured by global supply and demand.  On 9th December, the USDA released its latest supply and demand estimates.  The estimates increased the stock picture for both wheat and coarse grains, leaving the global market looking better supplied than a month ago.

A month ago, the slow progress in Australia due to recent rains had caused delays to harvest and exports, increasing prices.  However, harvest progress has improved with drier weather, and while exports will still take time to catch up, prices have fallen in response.  Beyond the improved situation in Australia, the next key event for grain markets will be South American maize production.  The crop is expected to be big, adding to the fall in prices, but with an active La Niña (which brings dry weather in South America), the crop reports need watching closely.

Domestically, we are seeing the price effects of global supply and demand.  The price of UK wheat while initially moving up through early December, has now fallen.  New crop wheat futures (November 2022), closed on 16th December 2021, at £195.65 per tonne.  Whilst down from the highs we’ve seen of late, this still represents good value in historic terms, and is mitigating some of the increase in input costs.

Ex-farm value, published by AHDB, lag the futures market, and as such, continue to show strength in the most recent publication (price to 9 December).  However, they do show that milling wheat premiums have remained strong.  In the week ending 9th December, ex-farm milling wheat was over £50 per tonne more than feed wheat.

Barley prices in the UK are also high, in historic terms.  The barley market is tight this year in the UK. Through the early part of the season barley remained a popular choice in animal feed rations.  This has narrowed the gap between wheat and barley.

Oilseed prices have also fallen over the last month. Domestic oilseed rape prices for old and new crop delivery have followed the direction of Paris rapeseed futures.  Oilseed rape (and rapeseed oil) prices had attracted a large premium over other oilseeds.  This premium has destroyed some demand and pulled prices down.  This is likely to continue, especially with Australia harvesting a record canola (rapeseed) crop.

Pulse markets have bucked the trend of other arable commodities.  The price of feed beans has remained relatively flat.  Trade has reportedly been ‘good’ in feed beans, but there are signs that demand may be dwindling.

November Arable Roundup

The price of UK cereals have continued to show strength throughout the last month.  Concern over global availability has pushed the value of May-21 UK feed wheat futures to fresh highs. Additionally, new crop (Nov-22) feed wheat has been trading at more than £200 per tonne through the latter half of November.  This offers a good opportunity to think about your average prices for next harvest.  This support in the futures market has translated into strength in ex-farm prices.  In the week ending 18th November, AHDB Corn Returns prices quoted ex-farm UK feed wheat at more than £214 per tonne.

One of the main drivers behind the continued strength in grain prices has been poor weather, delaying harvests in Australia, and causing quality concerns.  Available stocks in the Northern Hemisphere wheat exporters are tighter this season than they have been for many years.  The market is looking to Australia (and Argentina) to relieve pressure in the market.  However, delayed harvests and quality concerns puts a squeeze on availability.

Domestic milling wheat prices are also showing continued strength at present.  UK ex-farm milling premiums were quoted at just over £52 per tonne over feed wheat, in the week ending 18 November.  This reflects tight availability of quality, domestic wheat.

Barley values also remain supported.  The discount of feed barley to feed wheat has narrowed to levels last seen in August 2019, at less than £10 per tonne.  The surplus available for either stock or export this season is seen at the lowest level since 2018/19.  Strong domestic demand early in the season, combined with 267,000 tonnes of exports up to the end of September, has eaten into the exportable surplus and narrowed the wheat-barley spread.

Oilseed rape prices have backed off slightly over the course of November.  This is not overly surprising given how strong rapeseed prices have been.  The value of rapeseed oil is curtailing demand and this has removed some support for rapeseed prices.  Strength in the Pound has also pressured domestic rapeseed prices.  Sterling hit the highest point against the Euro since February 2020 in November.  This trend in Sterling may continue as we move towards the next meeting of the Bank of England Monetary Policy Committee on 16th December.  Close attention will be paid to decisions on interest rates at the meeting, with inflation still prevalent in the economy.

Pulse prices are also remaining firm for human consumption markets.  As with wheat, wet weather in Australia is causing concern for short-term availability.  Feed markets are under some pressure, with buyers absent in the short term, either through having purchased sufficient volumes or due to a lack of haulage making any further buying challenging.

OSR Area to Rise

The results of the annual Early Bird Survey of UK planted intentions show a 13% rise in rapeseed area for harvest 2022, at 345,000 hectares.  The increase is not surprising given how firm rapeseed prices are.  But, the fact the increase is not greater, reflects the large increases in rapeseed prices since mid-September.  This is after most planting has been completed.

The area of arable fallow is also seen increasing year-on-year.  This is a possible reflection of the surging cost of inputs this season, which will challenge many margins.  With high nitrogen costs we may have expected to see an increase in the area planted to leguminous crops.  However, this is not the case, and the area planted to pulses is forecast to fall by 5%.  As with OSR, this is likely driven by the timing of price rises.

Unsurprisingly, wheat remains a firm feature in the rotation.  The area planted to the crop is set to rise for the second year in a row, following the disastrous 2020 harvest.  The area is seen rising to 1.81 million hectares.  This is slightly down on the 1.82 million hectare crop for 2019.  This will go further to easing the tight domestic market we have now, following the 2020 crop.

With a rise in the area planted to wheat and OSR, barley and oats look set to lose out.  The total area intended to be planted to barley is down 4% at 1.10 million hectares year-on-year.  Area is also seen down 101 thousand hectares on the five-year average.  With grain prices firm it is arguably no surprise that spring acreage is down 8%, whilst winter area is seen up 4%.

If the intended area planted to barley is realised, then we could see the narrow discount of barley to wheat continue.  The barley market is tight at present in the UK, and a reduced acreage would do little to replenish stocks.

It is worth highlighting at this stage these figures represent intentions, rather than confirmed plantings.  Spring acreages are still very much open to change, dependent on the price of both outputs and inputs (especially this season).