Category: Arable

Potato Update

Growers are harvesting a potato grown under the shadow of Covid-19 and very extreme weather conditions.  The AHDB estimates a British potato area of 119,000 hectares, down 1.0% on last year.  Average yields would deliver a crop of 5.4 million tonnes; slightly more than the flood-impacted crop of last year.

National yields are likely to be average at best.  In the Eastern maincrop area, irrigation was vital to cope with the driest spring on record and hot and dry periods during summer.  More rain in the west and north of the country mean that yields were better in those regions.

Prices have started the season on a weak note with little expectation for better returns later in coming months.  The AHDB free-buy price is below £100 per tonne for the first time since the 2017/18 season.  There is demand for pre-pack material, but chipping potato sales are under pressure because of continued disruption in the fish and chip shop sector.  There will be fewer processing potatoes available this season because of reduced contracts.

Fresh retail potato consumption was up more than a fifth in the 12 weeks to 9 August, according to Kantar figures for the AHDB, with annual sales 8.4% higher as shoppers continued to buy more staples as they worked from home.  Out-of-home sales were given a boost by the Eat Out to Help Out scheme, although the exclusion of takeaways meant fish and chip sales did not benefit.  There will be fears that new Covid-19 restrictions could hit demand for potato products again, although frozen chips do have the benefit of a long freezer-life and being good value.

Potato planting in mainland Europe has increased a little, although that increase is confined to fresh table potatoes, with a cut back in the processing potato area.  Table potato prices are under pressure in most countries and while processing prices are very low (around €30 per tonne free-buy) there are signs of increases later in the season.

As if Covid-19 and the weather were not enough to contend with, this season also sees the banning of storage chemical CIPC and desiccant Diquat.  On top of that, a No-Deal with the EU could mean that the UK is unable to export fresh potatoes to the Union as it does not have third-country phytosanitary status yet.  However, as a net importer of potatoes and potato products, the UK could be less hit by the imposition of tariffs than the EU.

Grain Market Post Harvest Update

The combinable crop harvest is all but finished; the combine harvester has returned to its shelter where it spends over 90% of its time.  The few days of work it does is critical but inevitably hugely expensive.  It is a shame there is not a cheaper way to get crops threshed and off the field.

Wheat prices for 2020 harvest have shot up in August and September, from a recent low of £161 per tonne to today’s high of £182 per tonne (November 2020 Futures position).  Publications from the US Department of Agriculture have been showing an increasing global wheat crop size, bearish for wheat prices, but a larger decrease in maize production.  This is the underlying fundamental affecting the base of all grain prices.  Despite the recent reduction in forecasts, output is still 50 million tonnes higher than last year, so the market will not be struggling to source grain, suggesting that unless the local shortage is the main driver, the price spike could be short lived.

This sort of price has not been seen for feed wheat for a couple of years when it reached £193 per tonne for November on the Futures.  Consider however, that it was only above today’s level for a month and the same could happen again.  Once the feed compounders start switching to feed barley which is trading at a phenomenal £40 per tonne discount, then it will generate a cap in the market.  As far as the calorific content of the grain is concerned, barley calculates at about 9 to 10% less than wheat, meaning its proportional value to wheat at £180 should be about £160 per tonne.

The large discount for barley probably exceeds most predictions, but the wheat-barley spread was always likely to have grown this season, with the large barley crop harvested and small wheat crop.  We have also seen a poor quality barley harvest.  Whilst there will be enough malting barley for making malt for the beleaguered brewers, most of the surplus cannot be shipped as malting, so instead finds its way into the considerable feed barley pile.  Scotland is the odd one out and had a good harvest with ample high quality, low nitrogen malting barley, suitable for the malting sector and for shipping down to England.

Is there more barley than wheat?  Well, no, but the demand for wheat is higher than for barley (pigs and poultry eat mostly wheat), the demand for feed barley is limited (sheep and cattle do not eat so much grains) and our export outlets also better developed.  The UK will be importing considerably more wheat than it exports this season, and that will cause interesting logistical issues as our ports are not so well adapted at importing than exporting grains.

Overall oats appear to have harvested in reasonable condition.  Pulses on the contrary have a high percentage of insect damage.

The last fortnight of dry conditions has facilitated a neat end to what began as a tricky harvest period.  It is currently raining hard outside my window, which is now a comforting sight for many who were thinking a drop of rain will start the drilled seeds growing.

Metaldehyde

Defra has announced the outdoor use of Metaldehyde will be banned in GB from the end of March 2022.  The pesticide, which is used to control slugs on farms and in gardens was the subject of an ban announcement back in 2018.  The then Defra Secretary of State, Michael Gove, announced it would not be licenced for outdoor use from 2020; this was subsequently overturned in the High Court following a challenge by Chiltern Farm Chemicals, in which the Government conceded its decision making process had been flawed.

The most recent decision takes into account advice from the UK Expert Committee on Pesticides (ECP) and the Health and Safety Executive (HSE) about the risks that Metaldehyde poses to birds and mammals.  Farmers and gardeners will have until the end of March 2022 to switch to an alternative to control slugs.  Defra cites the usage of pesticides containing ferric-phosphate providing effective control without carrying the same risks to wildlife, but many in the industry claim pellets containing ferric-phosphate are less effective in controlling slugs.

The banning of Metaldehyde is part of the Government’s commitment to ‘building back greener from Coronavirus’ and a step towards ‘building a cleaner and greener country for the next generation’.

Global Grain Supply and Demand

Markets lifted in mid-August because of rumours of a whopping 700,000 tonne French wheat sale to China.  Rumours were confirmed when a fleet of 12 Panamax vessels (they’re the big ones), were booked.  The curious part of the event is that French wheat was dearer than US or Australian wheat, but the Chinese are playing political games, avoiding those who they feel politically aggrieved with, so ended up with the dearer European grain.  That is a short-term positive for the EU (and Britain), although the increasing levels of global protectionism in not good for anybody.  It threatens markets, consumer choice, economies and of course ultimately, security.

It is at this time of year when the global crop projections start to turn into reality.  Many combinable crop producing regions of the world start harvest before us so, by now, data is emerging on the size of the global crop.   Expectations are declining slightly as can be seen in the International Grains Council figures in the table below, with EU and USA suggesting smaller than previously thought crop tonnages.  Russia seems to be bucking the trend with a large grain crop, with 10% more grains than two years ago.  Most of the increase is wheat.  Opening grain stocks are thought higher than previous years, but by less than previously estimated.

Those grains that are not wheat are coarse grains (feed grains), which is predominantly maize.  This is the largest cereals crop by weight in the world and so is dominant in the pricing matrix.  Its current figures suggest a record crop, reaching potentially 1.16 billion tonnes.  It seems a very bearish fundamental, but is only 2.4% greater than 2 years ago.  This is in fact only slightly more than the 2.2% growth in human population over the same period.  As people are gradually increasing the grain consumption (e.g. by shifting from beef and lamb to pigs and poultry consumption), then this is only just meeting demand. We should expect a record production every year to meet the rising demand.

The chart does not show soybean supply and demand.  The key point is, whilst this is not grown in the UK, it has the dominant influence on UK vegetable proteins and oilseeds, being the largest commodity in both markets.  A small increase in the expected crops in the Southern Hemisphere means more will be available from the New Year which could be bearish on oilseed markets.  This may be offset though, if the Chinese continued their pattern of avoiding the likes of the US, and buying from Brazil (soybean) or the EU (primarily grains) instead.  Yet, we must remember that whatever is not bought from the large buyer, will still be available another day for the rest of the market.

In summary, although the UK harvest is going to be small this year, there is plenty of grain in the rest of the world.  This is likely to limit the scope for domestic price rises.

 

Harvest Progress & Autumn Plantings

Harvest Progress

Normally at this time of year, the lion’s share of harvest is completed.  But with intermittent rain preventing significant progress in many parts and a considerable proportion of crops being spring sown, there is still ample to do.  A roundup of the harvest so fr is set out below.

Rather inevitably, it has been uneven, more so than usual.  In parts of the South and East, where more winter crops were drilled, harvest has progressed the most, indeed some might have all-but finished.  Further into the Midlands, West, North and Scotland, it is only just starting, partly as rain has hampered progress, partly because there is more spring cropping here.  Growers on lighter soils appear to have experienced greater yield reductions, suggesting the spring drought was more damaging to crops than the winter rains were; at least for those that made it through to harvest at all.  It’s an interesting turn of fortune with light-soil farms coming through the autumn drilling challenges well, but overall might have suffered greater yield reductions.

On the whole, many growers have a higher winter wheat yield than they thought likely back in February before the rain stopped, but many fields are patchy.  Most still agree yields will not quite reach the 5-year average.

Oilseed rape has been overwhelmingly poor and most opinions canvassed suggest a national yield of perhaps 2.5t per Ha will be as good as it gets.  The official yield will be affected by how much land farmers decided to re-classify as fallow or was re-drilled in the spring.  Plenty of farms drilled 120% of their farm this year; their failed OSR area eventually harvesting a crop of beans or spring oats.  Oats are looking well nationally, especially springs.  Windy rain might blow some yield from the ripe top heads.  Similarly, beans are looking good overall, especially spring beans.

This is a time for harvesters to consider the order of their harvesting. If multiple crops come ripe at once, not only should they consider the total value of the crop in the field, but the potential lost value from a 1-day delay in the field. For example, if beans and feed wheat are both ready to cut, the wheat might represent greater value per hectare, but the delay in cutting the beans might lose more value from discolouration than a similar delay in the wheat.

Autumn Drilling

So what are growers going to do this Autumn?  Most people are expecting a serious decline of OSR cropped area.  A lower drilled OSR area is very likely, but it is possible that for harvest 2021, the volume of OSR might actually increase.  We estimated a 25% write-off from this year’s OSR crop that did not reach harvest.  If next year, the percentage written off falls to a more typical 7%, then a decline in planted area from our estimate of 495,000 hectares in 2019 to a possible 410,000 this autumn would still leave more harvested winter OSR as the table shows.

Possible 2021 Oilseed Rape Area, ‘000 Ha

Many growers are removing oilseed rape entirely from their cropping.  Simply replacing it with another break crop may not solve the problem.  Other break crops such as pulses are available and offer soil and following-crop benefits too.  However, they might not demonstrate such high potential gross margins and could also become squashed in the rotation, affecting their long-term yields.  Some farmers are increasingly collaborating with nearby dairy or AD farmers to offer wholecrop rye, grass fields, as well as other cereals.  Interestingly, the harsh winter of 2012 led many cereal farmers to grow (spring) oats.  Their positive outcome meant that oat area has been higher than pre-2012 every year apart from one.  A surge in oat area this year too, might see something similar happen – depending on market demand.  Spring barley area has also been on an upwards trend with possibly a million hectares being harvested in the current year.  The gradual rise of spring crops can also be seen by a slow decline in winter cropping including wheat which, until 2008, topped 2 million hectares on a few occasions, and now averages 1.8 million.  Spring crops not only help tackle persistent grass weeds affordably, but are cheaper to grow and spread overheads at crunch times of the year.  Perhaps this year will accelerate this long-standing trend.

Beet Contract 2021

The sugar beet price for the 2021 growing season will be slightly higher than this year’s values.  The base price for next year has been set at £20.30 per tonne, compared with the current £19.60 per tonne.  Both these prices have no crown-tare deduction which, since the 2019 crop, has meant that growers get paid for the entire root of beet they deliver.  From 2021 there will be a new sugar scale which will see farmers paid based directly on the sugar content of their beet.  The NFU and British Sugar claim that, taken with the crown-tare change, this means that growers will get paid on 3.4% more tonnage than under the previous system.  This means that the price is equivalent to around £21 per tonne in ‘old money’.

The market-related bonus will be retained.  This will be triggered when the EU reference price for white sugar is above €375 per tonne, with growers getting 10% of the value above this level.

There will also be a three-year contracting option for the seasons 2021 to 2023.  This will be at a fixed price of £21.18 per tonne.  The market bonus under this contract will be triggered at €400 per tonne with the grower receiving 25% of the excess.

Adding to the pricing options will be a pilot scheme linked to the sugar futures market.  This will be open to 100 growers in the first year who can allocate up to 10% of their contract this mechanism.  Producers will be able to fix a price based on prevailing values on the sugar market.

Also for the first time in 2021, there will be a virus yellows disease compensation fund.  This issue has become more prevalent with the ban of the use of neonicotinoid seed treatments.  Under the scheme, a grower’s losses will start to be compensated if they deliver less than 90% of their contracted tonnage (i.e. the first 10% of lost yield acts as an excess).  This is provided they plant a sufficient area and meet certain conditions.  British Sugar will pay 45% of the value of the shortfall (with the compensation payment capped at a 35% yield loss).

Contract packs and offers should be received by growers at the start of September.

McCains Pledge

McCains has announced a £25m package of support for its potato farmers.  The frozen potato manufacturer has launched the McCain Potato Farmer Pledge to support its growers after two years of upheaval – the worst crops in 40 years due to the weather followed by Covid-19 shutting the hospitality sector.  The farmer pledge is split into three elements:

  • A 3 to 5 year loyalty scheme, rewarding those farmers who continue to grow the crop
  • Grant funding for investment in harvesting capacity, irrigation infrastructure and innovative technology
  • Making contracts more flexible and sustainable, including improving prices for early season varieties

McCain will be allocating 40% of the funding in the first year, acknowledging the recent difficulties the industry is trying to recover from.

Gene Editing Consultation

The Government plans to issue a consultation on gene editing (GE) and other precision breeding techniques in the autumn.  Speaking during a debate on the Agriculture Bill, Defra Minister Lord Gardiner stated that the current EU-derived rules, which treats gene editing the same as ‘traditional’ genetic modification (i.e. transgenic approaches where genes from a different species are introduced) are ‘unscientific’.  The launch of a consultation is some way from actually amending the rules, but this would open-up new opportunities for UK plant breeders were there to be a change in regulation.  However, the flip-side is that any divergence between UK and EU rules introduces ever-more barriers to trade. 

Arable Market and Harvest

UK Combinable Crop Harvest – What Should We Expect?

The harvest is in its early stages; for some the oilseed rape and barley is gathered, for others it has just been desiccated or is still ripening.  At this stage of harvest, without fail, commentators remark on the high variation of yield and quality.  The first fields always show variation in performance, and even in consistent years, 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.  It would astound us if overall the combinable crop yields turned out high, especially the winter crops.  A good average yield of any of the main crops this year would either reset our expectations of what nature is able to do with plants in highly uncompromising conditions, or lead us to question the reliability of those calculating national estimates.

OSR

There will of course be some fields which just avoided being replaced in the spring, and harvest barely enough to justify the combine entering the field, but other fields will provide good crops.  Like all other crops, it is too early for any meaningful analysis.

Remember, the standard FOSFA contract for oilseed rape is for 9% moisture.  Oilseed rape is not accepted at moisture levels above 10% (or drying charges are incurred).  There is a gain of 1% in price for every 1% the moisture decreases to 6%.

Cereals

Some traders consider the winter barley harvest is 75% completed already (not the case round here by a long way – Ed).  Exports are taking place, both physical shipments and also orders.  UK feed barley is cheapest in Europe at the moment.  The demand for barley as animal feed (barley is generally for ruminants) seems to have dropped across some nations as people eat out less and therefore rely on white meats and vegetables in the home.  Demand for barley is thus down a bit.

Over the course of the last year, the price of wheat for this harvest has been gradually rising, albeit with considerable fluctuations from £140 to almost £170 per tonne on the futures market.  The prices for the 2021 harvest have remained highly range-bound between £150 and £155 per tonne.  The slowly declining UK and European crop size has been evident throughout the year, so prices have picked up, but so far of course, the crop for 2021 is unknown.

Globally

Most combinable cereals are grown in the Northern Hemisphere, so our harvest time will be more or less in line with most others.  Across the EU, harvest is quickly moving northwards.  In France and Germany, the two main grain producing countries, harvest is progressing in an average condition (not as well as last year).  The Russian wheat yield is reported as the smallest for at least 6 years, and smaller than initially projected.

Marketing

When it comes to marketing combinable crops this year, the focus may need to be more on the impacts of a Brexit than the actual marketplace itself.  Yes, we acknowledge similar comments were made following last season’s harvest and nothing happened, but Brexit has now occurred, and more importantly, a new trading situation will be implemented as of January next year.  This could possibly be trade with the EU without a trade deal.  These factors will affect the value of the marginal tonne (either exported or imported) which sets the price in the whole market.  We do not know the outcome yet, but farmers might consider this when planning on the date they fix the price of their grain (not necessarily the date of delivery).