Category: Arable

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.

Beet Price Boost

British Sugar has announced a boost to sugar beet contract prices for the upcoming 2021 crop.  This is a response to the disappointing 2020 crop which delivered low yields as a result of virus yellows disease (see December Bulletin) and saw harvest hampered by wet weather.  It will aim to get growers to continue with the crop,

The ‘Beet Package Plus’ contains a number of elements;

  • the basic beet price under the one-year contract will be increased from the previously-announced £20.30 per tonne to £21.10 per (adjusted) tonne
  • the price under the three-year contract is increased from £21.18 to £22.00 per tonne
  • the surplus beet price for the 2021 crop (2021-22 campaign) has been set at £20.30 per tonne
  • there will be a guaranteed market-linked bonus paid at a minimum of 80p per adjusted tonne
  • the cost of beet seed can be deferred, interest free, until the beet harvest begins
  • more flexibility on deliveries in the next campaign
  • a £12m assurance fund (previously announced) to compensate growers faced with virus yellows disease

Arable Update

It is early days yet, but the world is gearing up for record areas of maize plantings in the US.  Indeed, the USDA published its predictions in February with exactly that.  It might be expected that this would cause prices to collapse but, of course, the global populations keep rising and so with more mouths to feed, consumption needs to be a record every year, just to keep up.  The market recognised this and quickly calculated the plantings estimated by the USDA might not be sufficient.  Indeed, maize stocks are thought likely to reach a 7-year low at the end of the season.  Prices rose.  This is all rather forward looking as the Midwest (where most US maize is planted) does not get its drills out for another month or two. Southern States like Alabama start in March but more northerly areas such as Illinois (where more is planted) is late April.

Yet, grain and oilseed prices are at 7-year highs, or even higher in the UK and other national markets.  Production is clearly only half of the story.  In fact, the country with most mouths to feed is not only buying ever-increasing amounts of soybean (having imported vast amounts in recent years and hitting a gigantic 100 million tonnes in 2020/21), but is also now buying maize and wheat.  China’s food policy for millennia was to be self sufficient in grains.  This has changed.  The chart demonstrates that when China decides to buy something, it does so in volume.  Its wheat imports have doubled to 10 million tonnes this year and maize imports tripled, adding another 16 million tonnes of new demand to the crop.  The world will certainly feel it.

According to USDA estimates, Chinese wheat stocks at 155 million tonnes are half the world’s wheat reserves, and 10 million tonnes more than China consumes in a year.  China will also carry over enough maize to keep it going for 8 months.  One has to wonder what it is up to, either something big or it will release it all onto the market again at some point, something the Chinese did at the turn of the millennium, an action that contributed to 5 years of low grain prices.

Unusual weather around the world is, ironically, usual at this time of year with plantings and crops emerging from winter in the more southerly countries.  It often affects markets more than it affects crops suggesting it has limited long term impacts.  In the UK, whilst snow melt and subsequent rains have topped up the soil moisture levels to ‘saturated’ in many regions, the warmer weather and winds have also been starting to prepare soils for spring cropping.  A lot still depends on the rainfall in coming weeks though.  Barley remains cheap compared with wheat, and whilst new crop wheat has been steadily rising in price (November futures at £170 per tonne), the discount from old to new crop is about £35 per tonne. There will be nothing carried over this year.

Oilseed prices have been strong, pushed about by currency shifts, and the Chinese business (above), plus poor weather in south America.   Demand in the EU is tight, partly as people throughout the EU have still been driving a lot in the more recent wave of lockdowns and therefore buying biodiesel.  There will not be much OSR in the EU by harvest time.

The pulse market is still busy but possibly falling a bit as the Australian harvest is now in full swing and some of which has already reached the Egyptian shores, depressing demand from the UK.

 

 

 

 

Levy Vote

Levy-payers in the horticultural sector have voted to end the statutory levy.  The ballot was held when more than 5% of the 1,400 horticultural businesses that pay the levy requested a vote.  The ‘turnout’ was 69%.  On a one-payer-one-vote basis, 61% voted to discontinue the levy.  However, analysis by UK Engage which carried-out the poll, found that, according to value of levy paid, there was a reverse picture with 57% Yes votes versus 43% No votes.  It is also reported that there was ‘different sentiment across different crop sectors and size of business – . . .  a very complex picture’.  The results have been forwarded to Ministers who have the final say on whether the levy will end.  A separate vote in the potato sector is underway and will close in mid-March.

Combinable Crop Markets

The current UK wheat crop of an estimated 10.1 million tonnes is augmented this year by 1.2 million tonnes more imports than last year (over half a million more than usual) and higher carry-over stocks by about half a million tonnes.  The market has always priced the 2020 harvest crop higher than 2019 with a full carry (prices continue rising) from the end of the 2019 delivery period into the 2020 season.  For that reason, more people did not sell their old crop, but kept it into this year.  The opposite is already taking shape for 2021 crop, with a drop of over £40 per tonne for delivered wheat before harvest and shortly after.  Clearly there will be as little carry-over as possible.

Old crop wheat peaked this month at £214 per tonne, a great price to sell at.  However, only one person gets any business at the peak of the market, and that might have been a speculator, not a farmer and might have been a single lot (100 tonnes).  Prices have since declined to a still respectable £205 per tonne.  For those with any crop left unsold, selling at this level should be seriously considered.  As well as the reduced 2020 harvest, the continued weakness of Sterling is helping to buoy domestic prices.

Barley has also risen this month, but the price spread with feed wheat has remained close to or over £50 per tonne – an gap that is almost unheard of.  The new crop price spread is inevitably smaller with less barley and more wheat likely to be harvested.  Nevertheless, it is still between £15 and £20 per tonne, historically quite high.

Oilseed prices have also lifted with the rise of cereal prices worldwide, with OSR gaining £15 per tonne this month at one point.  Pulse prices are currently in a high position, compared with the range they tend to occupy, but arguably low compared with the current wheat values.  They are cheap in the current matrix, but there is a maximum inclusion rate in many compounders’ recipes meaning demand is capped regardless of price.  It will not be long before the generous Australian crop reaches a European harbour, then the value of local beans might fall a bit.

Neonicotinoid Authorisation

Sugar Beet producers will be relieved to hear Defra has authorised the emergency use of neonicotinoids on sugar beet seed in 2021.  The authorisation is for the use of Syngenta’s Cruiser SB seed treatment in England only, once a threshold for virus levels has been reached.  The emergency authorisation has strict conditions attached including:

  • the application rate will be below the normal commercial rate
  • no flowering crop is to be planted within 22 months of the sugar beet crop, with no oilseed rape crop to be planted within 32 months (no clarification whether this is from planting or lifting of the crop)
  • an industry-recommended herbicide programme must be followed to limit flowering weeds in and around the sugar beet crop.

In 2018 there was an EU wide ban on the use of neonicotinoids, which the UK said it would continue to adhere to once we left the EU.  But in 2020 Virus Yellows disease has had a significant impact on the UK sugar beet crop, with total production forecast to be 25% less than year earlier levels.  This led to British Sugar and the NFU lobbying for an emergency authorisation.  The Secretary of State has decided that the requirements for the emergency authorisation have been met and England joins a number of other countries with have granted emergency use, including Belgium, Denmark and Spain

Gene Editing

Defra has launched a consultation on the rules surrounding Gene Editing (GE).  Announcing the consultation at the Oxford Farming Conference, George Eustice said ‘now that we have left the EU, we are free to make coherent policy decisions based on science and evidence’.  At the end of the Transition Period on 31st December 2020, the EU legislation controlling the use of Genetically Modified Organisms (GMOs) was retained in the UK (similar to a number of other pieces of legislation).  The GMO legislation required that all GE organisms are classified as GMOs irrespective of whether they could be produced by traditional breeding methods.  It is Defra’s view that organisms produced by GE or by other genetic technologies should not be regulated as GMOs if they could have been produced by traditional breeding methods.

The NFU has welcomed the consultation, describing new breeding techniques such as GE as ‘absolutely critical in helping us achieve our climate change net zero ambition’.  The consultation which can be found via The regulation of genetic technologies – Defra – Citizen Space  is in two parts.  Part 1 focuses on the regulation of GE and Part 2 will start to gather views on the wider regulatory framework governing genetically modified organisms (GMOs).  Responses need to be made by Wednesday 17th March 2021