Category: Arable

Harvest Progress and Market Situation

The British harvest was start-stop in the first half of August, but in the last fortnight, considerably better progress has been made in most parts of the country.  The brief but frequent showers, enough to stop any harvesting for the day, appear to have reduced harvest quality to a degree.  This means there could be a greater than usual percentage of feed wheat and less milling grades.  Our crop projections and the recent planted area information from Defra (see other article) suggest a small wheat surplus meaning export parity for feed wheat and millers looking around for suitable samples for their grists.  Therefore, an increase in the price spread between feed and milling wheat grades might be expected.

Feed wheat prices have shot up another £20 per tonne this month.  This is because of serious weather problems in multiple grain-growing parts of the world.  Both North America (Canada and US included) and South America have had serious droughts this year decreasing the yields considerably.  Russia, another major grain producing and exporting country has also suffered from serious rain shortage and their crop harvest is emerging as much smaller than previously thought.  Not only have prices been increasing, buyers are looking to secure grains further ahead than usual.

Our uneasy weather has also extended into France, the EU’s largest wheat producer.  Reports suggest that wheat harvested in France is of generally lower quality than usual too.  This means that we could expect more feed wheat in Europe than normal, and consequently less milling wheat.  Again, this will only extend the milling wheat premium.  This year could turn out to be an exceptional year for some who have good yields, reasonable quality and market their grain well.

The oilseed rape market has also had an excellent month, back up to £500 per tonne delivered.  The underlying soybean market is rising fast with production difficulties in America.  Additionally, China, with the largest herd of pigs in the world (ever other pig is Chinese), has experienced its pig herd growing by a third this year alone.  Imports of soybeans are therefore rising fast.  On top of that Canada, the largest oilseed rape producer and exporter in the world is also facing difficulties.  It usually produces in excess of 20 million tonnes; current estimates suggest output will be 16 million at best this year, and possibly as low as 12 million; a massive reduction of global supply.  This bodes well for the few who grew oilseed rape this year.  We believe a considerably greater number of farmers are likely to plant it this autumn, in the hope of another good season.

Global Grain Balance

Global grain supply and demand is forecast to be well matched after the 2021 harvest.  The latest figures from the International Grains Council (IGC) shows production and usage at similar levels, both for ‘all grains’ and just for wheat.  The table below shows the figures.

The latest figures (for June) are compared against the first IGC forecasts for the 2021 harvest which were released in April this year.  The forecast production for all-grains has risen whilst that for wheat has declined slightly.  The latter is mainly due to the drought in North America.  Consumption forecasts have risen as the global economy recovers from Covid 19.  As is usual, the 2021 global harvest will be a record one – an ever-rising quantity of grain needs to be produced each year just to meet demand.

Despite the ‘balance’ in the overall grain market, it can be seen that the stocks situation is relatively tight.  This looks set to provide support to global values.  This will especially be the case if Chinese buying continues the trend seen in recent years.  

Producer Organisations

It is reported that transitional funding will be offered to Producer Organisations by Defra.   This will allow them to continue their activities supporting the fresh produce sector whilst a new ‘Horticulture Productivity Scheme’ is developed.  The sector feared a funding gap.

AHDB Planting Survey

The far better establishment conditions for the 2021 crop compared with the atrocious weather for 2020 harvest has resulted in a huge swing to cropping, largely back to more ‘normal’ levels.  For oilseed rape, the loss of confidence in growing the crop largely because of the mostly uncontrollable pressure from cabbage stem flea beetle (CSFB) has meant the harvested area has dropped to its lowest for over 30 years.

According to the AHDB’s 2021 Planting and Variety Survey, GB winter wheat plantings have recorded a year-on-year rise of 26% to 1,742 thousand hectares.  Every region recorded a rise in plantings, the most significant being in the East Midlands (+47%) and West Midlands (+42%).   Nabim Group 1 and 2 varieties made up 44% of the area in 2020 compared with 41% last year and 36% in 2019, showing a rising proportion of milling wheat being grown.

The total GB barley cropped area has recorded a 18% year-on-year fall to 1,119K hectares as growers ‘correct’ their rotations from their enforced spring cropping regime last season.  The winter barley area (not surprisingly) rose 15% to 350K hectares, with again the East Midlands recording the most significant rise of 88% with the South West showing the next largest rise of 35%.  As a consequence, spring barley plantings have inevitably recorded a 28% fall on the year to 769K hectares; still quite high compared with the years before 2020, demonstrating the gradual increase in spring cropping we are seeing in the UK.  According to the AHDB, 58% of the GB barley area is malting barley varieties; last year it was 75% and 56% in 2019.

The area of oats has risen by 1%, with an 18% rise in Scotland, and 2% fall in England and Wales with big swings in some regions (down 22% in the East Midlands and up 28% in the East).

The awful growing year in 2019/20 for oilseed rape, because of both the weather but also worst infestation so far of CSFB, clearly put a large number of growers off for this year.  Ironically, the crop looks good and its harvest is starting.  Yet, with a 21% fall of area in the East Midlands, 22% decline in the South West and 34% reduction in the East, the overall crop area has fallen 15% since even last year.  This makes the cropped area the lowest since 1989 when including spring OSR.  We expect those who stuck with it for this year will observe a good harvest and high gross margin so it may encourage a small resurgence of cropping for 2022.

The full AHDB Planting and Variety Survey can be found at https://ahdb.org.uk/planting-variety-survey

Harvest and Arable Markets

The harvest is in its early stages, with approximately a third of the winter barley in the Southern regions cut so far (it was three quarters this time last year).  At this stage of harvest, high variation of yield and quality is easy to observe.  We will refrain as the first fields present an unreliable bellwether for the rest of the harvest.  This is particularly as light southern soils often reach harvest before the heavier soils, and show greater yield variation, especially in years when drought has played a part in the year.  However, reports from most regions suggest that conditions are good, yield potential remains high and certainly far better than last year for most growers.

UK wheat markets have risen by £5 over July, but it has been an up and down month.  This has taken other crops with it overall.  Across the world, harvest is moving North.  Most winter wheat in the US has been harvested now.  The springs in northern USA and Canada will be next.  These crops are parched and yields are expected to be low.  Yields across Europe are generally good though.

Every July/August, the world looks carefully to see how closely harvest matches demand and earlier projections.  We hear about dry conditions around the world and the fragility of the food supply chain comes to mind.  The harvest in the Northern Hemisphere over the next two months being so critical to the survival of the ever-growing population.  There is no room for complacency and severe global drought would indeed cause problems across many countries (half of all grain stocks are hidden in China).  However, a number of economists have been proven wrong throughout history by projecting the inability of agriculture to meet the needs of its population.  Currently, stock levels and crop conditions are good and the first real indication of such a situation would be a strong rise in grain values.  This is not happening as we move from old crop (import parity) to new crop (export parity), with the associated price adjustment as we move to exporting wheat again.

Oilseed rape harvest is pressing on, whilst the price is being pulled by good soybean crops in America (North and South) and very dry Canadian OSR/Canola crops.  Within a month, this will be cut and the impact will be assessed rather than estimated or forecast which is what the currently fluctuating markets are based on.

Potato Update

The UK potato crop has escaped the worst of the storms that hit mainland Europe, although very hot weather in some regions was not conducive to crop growth.  A mix of rain and warmth over the next two weeks should help crop development, but conditions are near ideal for the spread of blight and growers are having to spray regularly to stop the spread of the disease, which has been difficult during the wetter weather.

New crop potatoes have had some price support as stocks have been slow to come onto the market following the cold and late start in the spring.  There is limited demand for old crop types, despite the lateness of the new crop and prices of packing material have failed to increase significantly over the last few weeks.  The easing of Covid-19 restrictions and the increase in the number of staycations has helped processing and chipping potato demand, but warmer weather means there is less demand for maincrop packing types, although salad demand is relatively strong.

The loss of area data from the AHDB following the vote by growers to stop paying for its potato services means it is difficult to judge how many potatoes have been grown across the UK this year.  World Potato Markets initially assumed a 5% drop in area, but the decline might be a little smaller than that.  Any decline from the 2020 British area of 117,500 hectares would mean one of the smallest areas ever and average yields would result in a crop of little more than five million tonnes.

Planting in the European mainland is estimated to be down, with the area in the four main western potato-growing countries (Germany, France, Belgium and Netherlands) 4.5% lower to less than 500,000 hectares, according to the NEPG group of grower organisations from those countries.  Up to 20,000 hectares of potatoes were estimated to have been impacted by the storms that hit Germany, Belgium and Netherlands, although some of that crop is salvageable.

Demand for processing potatoes across Europe and further afield has returned to a certain extent but is not back to pre-pandemic levels.  An expected lack of potatoes from the European and US crop (which has suffered from record temperatures) and a further return in demand means the global potato market is much stronger than a year ago.  European old crop prices have increased along with futures prices for the 2021 crop.

Beet Price 2022

British Sugar has announced the beet price for the 2022 season will be a minimum of £25.   This compares to £21.10 being paid for the current crop (under one-year contract terms).  The idea behind the company releasing an ‘indicative’ price before negotiations are complete seems to be to persuade growers to keep beet in the rotation as they plan their cropping decisions for the autumn and next spring.  The NFU is holding out for a higher contract price.  In recent years a contract price has not been announced until September.

June Arable Update

Much of Britain now probably has sufficient soil moisture to see the combinable crops to harvest, especially oilseed rape and barley.  We are projecting crop sizes of 7.1 million tonnes (mT) for barley (1.2 million less than 2020); 15.1 mT of wheat, approximately 50% rise on last year; 1.1 mT for OSR, 100,000 tonnes more than last year and about 100,000 tonnes more oats at 1.1 mT.  Overall, including ‘other cereals’, we are anticipating 26.7 million tonnes, up from 22.8 mT last year.  The figures are based on our expected crop areas and average crop yields 2014 to 2019.  This represents no records in either direction.  Whilst the crops areas appear relatively ‘typical’ we note there are still a lot of farms whose rotations are not back to what the management would have hoped for.

Old crop wheat prices have fallen £10 this month, slightly less than last month’s fall.  Old crop and new crop always come together so when new crop harvest starts, they are the same.  The fall is of little significance as so little is left.  With such a large price spread between old crop and new crop, few farmers have held on to grain.  New crop wheat values have fallen a Pound or so over the month, but have remained in a tight price range (£9.00 per tonne) since early April.

Across Europe, crop walkers have been reporting good yields pretty much everywhere.  The French for example estimate over 80% of their crop is in good/excellent condition, this compared with 56% last year.  Further afield, there is some concern that American crops are rather dry, but nobody is panicking yet.

In the table below, we have updated previous years’ data with the AHDB estimates and our own thoughts and calculations for the 2021 harvest and its subsequent marketing year.  We think that the UK will revert back to being a net exporter of wheat, having imported more than we exported last year.  Export Parity (i.e. the price grain needs to be to be sold out of the country) tends to be lower than import parity (the price it has to be to stop imports from coming in from elsewhere).

The barley market is currently quiet, as the buyers are waiting to see what the new crop brings.  UK barley is too dear compared with that from other locations to attract exports.  It is also too close to wheat price for most feed mills.

The UK OSR crop is looking rather well as it starts ripening.  This will be difficult to see for so many growers who decided not to grow it this year.  One has to ponder how many growers will return to OSR this autumn for next year?  We expect a rise in cropped area.  Prices have shot up in the last month from already high levels.  Normally we would expect oilseed rape to sit at about 2 to 2.2 times the value of feed wheat.  We are currently between 2.5 and 3 times, depending on date of movement, making the comparative gross margin of OSR quite attractive.  UK OSR is also trading at a premium over Paris rapeseed prices.  This is because we have imported so much (over half a million tonnes) this season.  This is mostly from beyond the EU.  For those planning next year’s rotation, remember price relationships will be quite different by the time they are sold.

Grain Market Briefing

In early May, wheat hit contract highs, for example £192 per tonne for November 2021 London futures.  Since then, markets have fallen by £20, leaving the same delivery position worth £172.  Values throughout the world have fallen in a similar manner.  Global sentiment is mostly driving this.  Weather conditions have improved for crop growth as lots of rain has arrived  – not just in the UK but around the world.  Record yields of wheat are now projected for the forthcoming US harvest. Coceral, the European Association of Grain traders, has increased its European harvest projection from 126 to 131 million tonnes of wheat; a substantial uplift in a single month.

This time of year is traditionally volatile for grain prices.  This is partly on technical issues to do with tying up the paper transactions associated with the old crop.  It is also as rain or no rain push markets around.  The market swings are often greater than the benefit or damage the rain has on growing crops.  It is not only the effect on crops that are already in the ground.  The rain that has fallen in the US Midwest, the grain basket of the West, allows ideal conditions for maize and soybeans planting too.

Old crop wheat Futures expired in May, at the time £25 per tonne higher than new crop.  Therefore, it must be assumed that all barns have been emptied with that size of price drop.  This should allow ample time to clean them and ensure they are in top condition for the 2021 crop.

Feed barley has slipped in line with the decline of wheat price this month.  Malting barley premiums are mixed.  This is partly as the UK anticipates a smaller and far more manageable barley crop in 2021 than the mammoth crop last year.  It is also in reflection of the current ideal barley ripening weather conditions in Central Europe.  The high proportions of barley used in feed rations in 2020/21 are being reduced in preparation for the smaller 2021 crop.  Demand is thus likely to be lower this coming marketing year.  Growing and ripening conditions are good for barley throughout Europe. Some harvesting might even have started by the next edition of this bulletin.

In the 2020-2021 marketing year, China moved from importing no more than 5 or 6 million tonnes of maize each year to importing 25 million tonnes.  The USDA has projected a similar level for 2021-22 (harvest 2021), but some analysts believe they have already booked approaching that amount.  This suggests their maize importing might continue rising in the coming years, in a similar manner they did for soybeans over the last couple of decades to world-changing levels.  This could tighten supply in 2021/22, potentially pushing the whole grain price matrix higher.

Oilseed rape price has also declined, albeit by proportionately less than the cereals market.  It is easy to note that OSR has fallen £20 this month.  But also remember it is £60 per tonne higher than three months ago, even after the recent fall.

International Grains Council Figures

The International Grains Council (IGC) has released its first full supply and demand projection for the 2021/22 year.  This shows 63 million tonnes more grain production than last year at 2,287 million tonnes (a 2.8% increase).  Production rises each year because demand does too and the rise in demand of ‘only’ 54 million tonnes simply halts the decline in stock levels.  The level of grain stocks entering the new marketing year is the lowest for four years – this is what is fuelling the global price rises.

The table below demonstrates the figures .

19/20 figures estimates; 20/21 forecasts; 21/22 projections    Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US

A small rise in wheat partially offsets the decline in total grains.  This matters in the UK because wheat is the dominant cereal crop.  However, this means the coarse grain decline is greater still.  The figures are marginal at this stage of the year, but it means that the current concerns of continued excessively dry weather, or the arrival of persistent rain in the key grain growing parts of the world could have major swings in the availability of grains for the coming year, and prices accordingly.