Category: Arable

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.

Grain Market Update

Old Crop

Technical changes:  Towards the end of the grain marketing season, markets respond to the fundamentals of grain supply and demand differently.  Attention turns increasingly to the fundamentals affecting the new crop.  The increasing amount of information about new crop overtakes the dwindling old crop commentary.  Not Much old crop grain remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop being traded is rising all the time. This surpasses the declining volumes traded of old crop, especially this year with such small amounts of old crop wheat to start with.  This accelerates when the last old crop wheat futures market expires as is the case now as we enter May.  Market fluidity also declines when futures markets are not available.  The technicalities of closing contracts held becomes a physical issue either having to physically deliver them or close the position.

Fundamental changes:  Grazing animals have gone to pasture.  Unfortunately, grass is not forthcoming because of the dry and cold weather. Consequently, demand for feed barley has picked up from feed manufacturers in what would normally be the last embers of the old crop campaign.  Unsold old crop grains might experience a surge in the last month of the market before new crop harvest.  Other old crop users; millers, maltsters and other feed compounders are trying to get to the cheaper new crop with minimal carry-over.

The pulse market sometimes takes a small bounce as the last vestiges of the old crop market are mopped up and sent off on a boat.  This has happened with some local buying interest but the Egyptian market is dominated by the Australian crop now though so any business will represent the last breaths of an old crop trade.

New Crop

We are all aware of the need for emerging (spring) crops to receive rain in almost all of the UK.  In fact, there are dry conditions from the US Midwest, to the far side of Europe.  Agronomists think that the lack of moisture is starting to affect yield potential in many parts of the world and UK.  Winter crops have a remarkable ability to recover from dry weather conditions.  Drought initially affects markets more than crops, especially when it is international.  At the start of April, cereals prices were heading down, having peaked in January.  Since then, they have roared back up by nearly £20 per tonne, to contract highs, and a day or two more of dry conditions and they could go further.  Clearly, heavy rains could reverse much of these gains.

Dry spring conditions of course affect spring crops as well as winter.  Globally, two third of feed grains are are spring grown.  Thus, concerns from consumers are encouraging them to book what might be a scarce resource in the coming 12 months.  Speculators, not wanting to buy grains, but to cash in on the rising market values have also been wading in on the game, exaggerating the movements.

Barley price has risen more than wheat.  Not only is two thirds of the crop spring-grown in the UK, making it more vulnerable to drought, but the spring barley crop area has fallen back considerably to ‘normal’ levels.  The new crop feed barley discount to feed wheat has come back down to the conventional levels of sub £15 per tonne.

Soybean prices have reached their highest values for 8 years.  UK oilseed rape has gone up by another £20 per tonne.  Demand for soyabeans from China is higher than ever, despite the ill-found concerns from last year’s African Swine Fever.  The rapidly returning stock of breeding pigs is replacing the gap left from the porcine cull.  This required lots of beans to feed them with then oil cook them in.

New crop pulses have not really started trading.  The quality of beans being very unpredictable ahead of harvest, after which, market open.

Sugar Recovery

British Sugar is bullish about the prospects for this year’s sugar beet crop after the problems seen in 2020.  The company believes total sugar production is likely to be just over 1m tonnes – 10% higher than was seen in 2020.  The main reason is a reversion to more normal yields after those last year were hit by virus yellows disease, which caused a drop of 25% in crop output.  The cold weather in February has reduced aphid numbers which spread the disease.  As such, the emergency authorisation for the use of neonicotinoid seed treatments was never triggered.  British Sugar says the crop was established well this year in March.  Like many spring crops now, sugar beet will be in need of rain.  Crop plantings this spring are down 10% on the 2020 area of 103,000 Ha as growers responded to the problems of 2020 by reducing area.  The higher yields are expected to more than compensate for this and result in increased production.

Pick for Britain Scrapped

The Pick for Britain campaign has been ended by the Government.  Set up in April last year, in response to a shortage of migrant workers caused by the Covid outbreak, the hub aimed to match prospective UK workers with employers and recruiters (see April Bulletin).  Despite large amounts of publicity and high levels of interest, it is believed that the campaign resulted in relatively few workers actually placed in roles on-farm.  Rather than a dedicated portal, the plan is now to use more ‘mainstream’ channels such as the Jobcentres run by the Department for Work and Pensions to match employers with workers.  The 2021 season looks set to be another testing one for fruit and vegetable growers in terms of sourcing seasonal labour.  Although the Seasonal Agricultural Workers Scheme (SAWS) has been extended to 30,000 places this is some way short of the estimated 80,000 people required.   

Grain Market Thoughts

The world grain and oilseed markets remain dominated by a seemingly insatiable appetite by China to import ever-increasing tonnages of all grains and other commodities.  It has been importing most of the world’s traded soybeans for many years now but has only recently entered the market for colossal amounts of maize and wheat too.  This demonstrates that the Chinese agricultural policy of hundreds of years of being self-sufficient in grains is well and truly finished.  According to statistics published monthly by the USDA, the Chinese now hold not only two thirds of global maize stocks (9-months’ Chinese demand), but also 50% of global wheat stocks, 35% of soybeans 60% of rice stocks and 40% of the cotton.  Something is going on.  Some global food supply reports suggest China is about to experience a major food shortage and global food prices are therefore likely to rise any time soon.  Other reports suggest the stock levels are quite wrong and China is not hoarding quite so much.  The truth is likely to be that even the USDA does not really know for sure what China has (perhaps the Chinese cannot be so sure), and of course, being part of the US Government, the USDA could have another agenda, but it’s the best information we have.  China did build up similar stock levels at the turn of the Millennium, so it is not unprecedented.  It subsequently then ran down stocks, contributing to a bearish grain market for some years.

This time of year, crop reports from around the world are a major factor in the pricing of the new crop.  People might look first at the eye-catching old crop prices, but as most of that will be sold by now (or at least committed and priced), the new crop is of more significance.  November 2021 futures closed on the 25th March at £33 per tonne lower than May 2021, at £166 per tonne.  Russian analysts have recently reported good growing conditions for their wheat and increased their tonnage projection by 3 million tonnes (to 79 million) despite relatively poor crop ratings.  The Ukrainians too have done the same, reporting their wheat is in an excellent state and the positive reports travel through Europe too with Strategie Grains also posting good yield expectations for European wheat crops.  Despite the avid export of all grains to China, it is these positive prospects for production that has taken the edge off the grain prices in the last month.

New crop barley, whilst still having a larger discount to feed wheat than most years, has at least fallen to £15-£20 per tonne from feed wheat which compares favourably against the £30+ discount for old crop.  Not only is the production far lower than last year, but also we can hope that come June, people might start drinking more beer again so the malting industry might be rekindled.

The oat market took a boost this month with news that a new oat buyer is planning to set up in Peterborough.  Oatly, a Swedish company will make milk from oats to supply the growing market for animal-milk alternatives (see below). Farmers have found oats a very useful crop agronomically in recent years, but held back from growing it as few buyers have been in the market, so perhaps this will encourage a greater cropped area.

Oilseed rape for post-harvest looks as encouraging as this season’s prices have proven to be.  Perhaps some growers who opted away from the crop will be looking at these bid prices wishing they had tried growing it again.  Perhaps next season, the crop will experience a resurgence of area cropped.  The supply and demand table continues to look tight for new crop because, despite a likely rise in production from Canada, the largest producer, the other main regions (particularly Ukraine and Australia) look set to be lower.  Europe will remain in deficit too with large planted area reductions throughout the continent.

Demand for pulses has fallen away this month, as is often the case in March, as the Australian crop starts reaching the North African buyers.  The market will be thin from now on, and occasionally closed.

A Potato Market of Two Halves

The potato market is split in two. Growers with good quality potatoes find willing buyers and premiums. Those with lesser quality material find it difficult to sell and have to settle for low prices. The banning of the anti-sprouting chemical CIPC has made storage more of a challenge this season and those who can keep their stocks in good condition in store until late in the season should see higher prices.

Home consumption of pre-packed potatoes continues to be elevated by lockdowns, although not to the same extent as last spring, but demand for processed frozen products is still weak due to restaurant closures. Suppliers of potatoes to fish and chip shops are hoping that the easing of restrictions and better weather will boost demand and prices.

The cold and relatively wet spring has delayed planting, but the forecast for better conditions into April is bringing growers out onto their fields. The continued uncertainty over coronavirus and weak prices for much of this season are expected to result in a smaller potato area than last year – a 5% drop would result in one of the smallest areas ever.

The first post Brexit-transition trade figures show a big drop in ware and seed exports in January. Ware shipments were 80% lower than in January 2020 as the result of stockpiling by buyers, including in Ireland, in December and the new trading certification and customs requirements. UK seed exports to the EU and Northern Ireland continue to be banned, with little prospect of them resuming soon. Ware and frozen chip imports were also down because of the disruption.

Levy payers have voted by a wide margin for the AHDB potato levy to be discontinued. Two thirds of the 64% of levy payers who voted (1,196 in total) rejected the levy, with potato buyers (who pay £0.19 for every tonne they buy) objecting by a slightly wider margin than growers who pay £42.62 for every potato hectare grown. Defra, Welsh and Scottish ministers are now considering what action to take. They do not have to discontinue the potato levy, but are likely to insist on radical changes at the very least. In February horticultural growers voted against the continuation of their AHDB levy, although not by such a wide margin.

Oatly

The Swedish company Oatly, that produces alternatives to dairy products from oats, plans to open its first UK factory in 2023.  The facilities which will be based in Peterborough, Cambridgeshire will initially produce 300 million litres of oat drinks per year, increasing to a capacity of 450 million litres.  According to the company it will use oats from across the UK which will be a boost for the domestic crop, which has seen a resurgence in recent years.  How much of a boost in oat demand is difficult to calculate.  We have tried to find out how many litres of oat drink you can get from a tonne of oats; but with no success so far.  .

New date for Cereals 2021

Cereals 2021 will now be held on June 30th – July 1st this year.  Under the Government’s lockdown exit strategy, restrictions are due to end on 21st June, organisers have therefore decided to move the event from the original June 9th-10th in order to accommodate the maximum number of visitors and exhibitors.  The event will continue to be held at Boothby Graffoe, Lincolnshire with the format remaining the same as in previous years.