Category: Arable

Roundup

Bayer, the owners of Monsanto, have agreed a package to settle US lawsuits over the alleged health problems caused by the glyphosate product, Roundup.  It will pay out $10.9bn (£8.78bn) which the company states will settle around 75% of the 125,000 cases which are ongoing.  Bayer points to the scientific evidence that shows that glyphosate is safe to use, but the company has concluded that the costs in terms of legal expenses, uncertainty and reputational risk in continuing to fight the cases is higher than making a settlement.  Roundup products will remain on sale despite this move.

International Grains Outlook

In contrast to the UK, global grain production looks set to increase for the 2020 harvest (2020/21 marketing year).  This is the latest forecast from the International Grains Council’s (IGC).

Since April, the total expected grain production has gone up by 12 million tonnes and consumption down by 4 million. These figures might seem small, but global organisations like this will make subtle and gradual changes so as not to have to reduce them again the following month.  The summary then is that grain availability is slowly becoming easier than was expected earlier on in the season.  As can be seen in the table, this is not the highest stock levels the world has seen for a year or two, but a small change in supply makes a larger difference in price.

18/19 figures estimates; 19/20 forecasts; 20/21 projections    Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US

What the table does not show is the impact of protectionism.  It suggests that there are 2.23 billion tonnes of grain for anybody to buy.  Clearly, much of that is locked away in countries that are not engaged with the global market, or where the domestic market mops up the whole domestic crop.  However, the recent moves by Governments around the world to ensure their citizens have enough food, and thus preventing export sales is potentially restricting the movement of some grains from, for example, Russia.  Russians will not eat more wheat than usual though, meaning any surplus will emerge onto the global market eventually.

The easing of the global grain market places a downwards pressure on prices.  This will be felt in the UK and is serving to counter-balance some of the upwards pressure from a small UK harvest.

 

Harvest 2020 Prospects

In the June 2019 edition of this Bulletin, we wrote “It never rains, it always pours!  By early June, some were concerned about the dry soil conditions, by the end, the concern was flooding.”  Some parts of Central England have felt the same about this year, with flash storms, bringing a month’s rain in a morning, onto previously dry land.  Damage to crops is thought minimal, if only because they are so thin!  The current sunshine will help them ripen with good quality and support bushel weights.

Since September last year, the November 2020 feed wheat futures price has lifted from £140 per tonne to over £175, and is currently at about £163 per tonne.  Since September, production concerns have reduced the expected crop size to what most people now expect to be considerably less than 10 million tonnes, and probably nearer to 9 million.

November 2021 wheat price has hardly moved out of the £150 to £155 per tonne range since September.  Clearly, there is so little information about how much there will be in 2021 yet, and what the change in demand might be, that the market does not move far unless currencies shift it.

Looking ahead at the possible, or likely supply and demand figures for wheat this year, we find a most unusual situation.  We are likely to enter the 2020/21 crop marketing year with considerable carry-over stock level according to the AHDB; higher than we have had for 30 years.  This is convenient, as the harvest projection outlined above is 5 million tonnes, or a third, down on the average crop size.  It means the UK will still need to import approaching 4 million tonnes of wheat with zero exports to balance the books and finish with sufficient ‘pipeline’ stocks – the stocks that are required to keep the mills running between the end of the marketing year (June) and the harvest.  This is an import level also not seen in a generation.  Not only has the UK not had a crop this small in that period, but also, since the last small crop (of 11.5 million tonnes in 2001), the UK has increased its level of wheat processing and consumption by 2 million tonnes.

UK Wheat Balance Sheet – source AHDB & ABC

The barley supply and demand outlook is less extreme.  Whilst the data is not as easy to interpret (two crops, less certainty about spring drilled area for example), using the lowest yields for both crops for a decade, and the crop area figures used by The Andersons Centre, we end up with a crop of 6.3 to 6.4 million tonnes.  This is considerably less than last year (8 million) but similar to 2018.  The rains last week will have provided a necessary boost to the growing crops in the UK, especially the springs, and now most grains will have sufficient moisture to see them to harvest.

The area of oilseed rape harvested is likely to be less than 400,000 hectares (including springs), making it the smallest area since 2002.  With some shocking looking crops in the ground, it is possible the total crop tonnage will be less than it was then.  Demand is lower though, as the economics of biodiesel is not worth turning the factories on, and with people not eating out (where food is generally fattier), the demand for oils for cooking has also fallen.  The market for pulses at this time of year is very quiet.  The recent rains will have been very well received by the growing crops, especially the spring drilled ones.

Sugar Beet

The sugar beet market bonus has been triggered for the first time.  Concerns over poor yields for the forthcoming crop in the UK and the EU has seen the average EU and UK white sugar price in April reach €379 per tonne leading to a 0.7p per tonne monthly bonus on the 2019/20 one-year contract (triggered at €375 per tonne).  This is the highest average monthly monthly value reported by the EU Commission since December 2017.  Prices are expected to continue to remain strong due to a tight balance sheet and an increasing risk of a third consecutive below-average yield in the EU/ UK region as a whole.  British Sugar is already forecasting production in 2020/21 to be less than in 2019/20,  due to the difficult weather conditions, despite the area planted being about 5% more and this is being mirrored in nearby countries.

Loam Farm

Despite the absence of a physical Cereals Event this year, Andersons have updated their Loam Farm figures as is usual at this time of the year.  Not surprisingly, the financial prospects for harvest 2020 are not looking too great and this has prompted a change of cropping policy for 2021.

Loam Farm is a notional 600 hectare business that has been used since 1991 to track the fortunes of British combinable cropping farms.  It is partly owned and partly rented and is based on real-life data.  The latest figures are shown in the table below – illustrating the performance the farm has achieved for the past two harvests, and the prospects for the coming season and the one following that.

In 2018, yields were affected by the summer drought, but higher prices partly compensated for this. Extra costs meant that returns from farming were at least positive, but lower than had been seen in earlier years.  The 2019 harvest saw yields exceed expectations. With reasonable sale prices (a mix of forward selling and spot sales through to spring 2020 when markets moved upwards) profitability improved despite an increase in both variable and overhead costs.

The upcoming 2020 shows the effects of the unusually wet autumn and winter. The standard cropping on Loam Farm has been 150 Ha each of feed wheat, milling wheat, oilseed rape and spring beans. This year only 70 Ha of feed wheat and 80 Ha of milling wheat got planted. The usual 150 Ha of oilseed rape was drilled, but 50 Ha was ripped-up this spring as it had failed. Spring plantings were unusually high with 200 Ha of spring beans and 150 Ha of spring barley going in.

As well as planted areas, projected yields have had to be altered in the budget as well. Both winter wheat and oilseed yields are lower than the farm would traditionally expect. As a positive, crop prices are reasonably firm – although the large area of barley planted nationally means a big discount to wheat. Also, costs have been saved due to a less intensive spray programme. Fuel has also been cheap this spring and some stores (seed and fertiliser) have been retained for next year. Even so, the weather has had a significant effect on budgeted farm profitability – pushing the business into a loss-making position from its farming operation. It is reliant on the BPS for overall profit.

Looking to 2021, the farm has decided to make a significant cropping change. It has been decided that OSR is no longer viable and too risky with front-loaded costs. A new rotation has been planned – 200 Ha 1st feed wheat; 100 Ha 2nd milling wheat; 100 Ha spring barley; 100 Ha spring beans; and 100 Ha winter oats. This means the farm has 1/3 spring cropping, helping control grassweed issues and spreading workload. With the change of cropping policy (and poor cashflow from harvest 2020) it has been decided to ‘pause’ machinery investment for a year. One side-effect of moving away from oilseed rape is that more grain storage is required. The cost of investing in an expanded grain store is included in the figures.

The dip in profitability for 2020 caused by a ‘difficult’ season can clearly be seen. At present, the BPS is available to smooth-over such problems. The phase-out of the BPS poses challenges to Loam farm and the many businesses like it to do something different. Loam Farm has been proactive with cropping changes to make itself more resilient in the face of potentially more difficult business conditions ahead. With change undoubtedly coming, those businesses that grab a head-start in improving efficiency will be best placed to prosper in the new environment.

Arable Roundup

Everything grain marketing is focused on new crop by this time of the year, even the remains of the old crop respond to new crop market fundamentals.  So prices are moving based on the reports of crop development and of rain or sun. Hence, the markets at this time of year fluctuate far more than the well-being of the developing crop in the ground.  This volatility is of less importance in the spring as farmer selling tends to slow, as has been the case this year too.  Sales are even slower than normal, as a result of farmers trying to assess what they might have to sell.  Inevitably, for many this will be less come September than usual.

The US Department of Agriculture (USDA) in its May bulletin released figures showing ample wheat stocks, sending wheat prices down.  But the growing conditions around the world are not great at the moment.  The Russian new crop is suffering more than the UK from dry conditions and the crop expectation there has been reduced several times by the local analysts.  Across the EU, similarly, crop prospects are being trimmed back by dry soils from the UK across the Northern European belt.  At the time of writing. the outlook remains warm and dry.  With the UK wheat crop almost inevitably less than 10 million tonnes, and possibly considerably less, the London wheat futures have been gradually rising.  This has also been supported by a weaker currency.

Maize demand is starting to rise again with the resumption of an ethanol market in USA.  The same is happening for oilseed rape in the European markets with biodiesel demand restarting again.  This, coupled with the anticipation of oil guzzling restaurants reopening soon in the UK and Europe has led to higher oilseed rape prices.  Coupled with a very low OSR stock level in Europe gave the market a £10 per tonne boost.

The same factor has been positive for malting barley; hints that physically distanced bars might be able to reopen soon have supported the malting sector.  Furthermore, the dry soil conditions have pushed down the yield expectations for the large area of spring barley, trimming the potential total crop size.  Again, this holds true for Europe going right across the Black Sea regions.  Rain is needed badly in the whole of Europe.

The pulse market has reached its high point, having risen to levels that don’t calculate to export to buying destinations.  Trading is still quiet as Ramadan continues, but is in its last week.  There might be some new crop business thereafter, but probably only when prices come down slightly.

The release of the UK Government’s import tariff schedule this month explains the charges exporters will have to pay to send grain to the UK after the departure of the UK from the EU-Brexit Transition Period on 1 January 2021.  The tariffs  to import wheat and barley from third countries will be £79 per tonne and £77 per tonne respectively.  We normally export these crops but this year this may not be the case due to the low crop size.  Therefore these tariffs might have a market effect.  However, the import tariff for maize will be zero, suggesting maize can flood in from France and the Americas easily.  Thus maize is likely to be the feed-grain import of choice.  Furthermore, the high specification wheat will also not have a high tariff, suggesting the milling wheat demand will be sufficiently met.

International Grains Council Figures

The International Grains Council (IGC) has released its first full supply and demand projection for the 2020/21 year.  This shows 48 million tonnes more grain production than last year with a 34 million tonne rise in consumption.

Grain consumption goes up every year (by about this much) as might be expected; simply as the population rises and each person consumes more grain on average (mostly indirectly through animal feed).  This means that production should be a record each year, simply to keep pace.  However, this coming year, despite production clearly rising by more than demand, the stock level is thought likely to fall, albeit only by 3 million tonnes.  This is because the stock level was already falling and simply to keep pace, production would have had to rise further.  This is demonstrated in the table.  The level of year-end stock has fallen from over 30.1% three years ago to 27.1% now.  This is what has underwritten improvements in grain prices in the last year.  China is ever-increasing its holdings of grain stocks, with over half of wheat and possibly as much as 65% of global maize grains being held in its stores.  This potentially means there is much less grain available than these figures suggest as Chinese stocks are not generally available for the wider market.

18/19 figures estimates; 19/20 forecasts; 20/21 projections   (1) Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US 

For wheat specifically, the picture is reversed.  The stock level is seen rising, with a greater rise of wheat production for harvest 2020, resulting in production remaining well ahead of consumption.  Overall, the figures suggest a strong level of price support for grains overall, but there is ample wheat, suggesting the price premium that wheat tends to carry over maize and other feed grains, might be rather slim for a year, notwithstanding the impact of lock down.

 

Grain Crop Commentary

Old Crop

Technical changes:  Towards the end of the wheat marketing season, the impact of the fundamentals of grain supply and demand change, with some factors taking on greater impact, others less.  Attention then turns to new crop, and the fundamentals affecting it.  The increasing amount of information over the emerging new crop overtakes the dwindling and ageing information about the remaining old crop, of which little remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop wheat being traded, which is rising all the time surpasses the declining volumes traded of old crop.  This accelerates when the last old crop 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, so feed grain requirements have fallen sharply as is often the case in spring.

Demand for bread rocketed in the first days of lockdown, fuelled largely by thoughtless panic-buying.  It has settled at about 115% of normal demand which millers and bakers are managing to meet.  Bagged flour was considered a secondary priority as it is less critical to consumers and slower to reach them, more wasteful than bakers baking bread, more expensive but less profitable to the supply chain, and the paper bags were in very short supply.  It is now coming back on-stream thanks to good communications throughout the supply chains.  Nabim published a map of available flour outlets.

Poultry consumption has risen, and produces have adjusted their feeding regimes to fit in with their new supply chain requirements as demand has varied (you can finish a broiler quicker or slower by changing diets).  Yet, feed wheat demand for ethanol production has stopped.

Russia and Ukraine have imposed grain export quotas, meaning prices may rise in May as these limits are hit.  The overall conclusion is that milling wheat is in demand but feed wheat less so.

In the barley market, maltsters are closing sites because demand for malt has collapsed as beer consumption at home and alone is lower than in pubs with mates.  Those brewers who have a market to sell to, do not have bottles to put beer in; barrels are not currently required.

The demand for oilseed has fallen as we eat less greasy take-aways and pizzas.  Any requirement for OSR for biodiesel has totally dried up.  Demand from the supermarkets is not being fully met either though, suggesting some issues with supply.  OPEC, the oil cartel has reduced daily crude oil production but only by 9.5 million barrels as day, when consumption has collapsed by 35 million. Nobody needs oil if we’re not moving about.

New Crop

Two months ago, few would have believed that many growers in the UK now require rain.  Some heavy soils are still coping well with large reserves in sub-soils but emerging spring crops require moisture at the soil’s surface and other lighter soils have become dry deeper down.  The dry area extends across Northern Europe to Ukraine.

New crop wheat prices are within a couple of Pounds of contact highs, set in March.  The reasons are a small crop in the ground, a wet winter and dry current conditions and some analyst’s comments suggesting the elevated bread consumption levels to continue post harvest.

The dry spell has enabled spring barley to be drilled in almost every spare corner of Britain.  Few fallow fields are now evident.  The potentially huge malting barley crop slowly grows, but no exports sales are being booked.  Other countries nearby also have lots of spring barley, and no beer drinkers.  The German Octoberfest, which attracts up to 6 million beer guzzlers has been cancelled this year. Malting quality barley will go as feed barley this year, clearly depressing the feed barley price too. The spread between barley and wheat could be considerable this autumn.

The price of beans has been falling as we enter Ramadan and the demand from our export homes slows.  A large spring bean crop is in need of a good watering.

Beet Harvest and Plantings

The 2019 sugar beet harvest was slightly improved on the previous year.  British Sugar has announced that 1.18m tonnes of white sugar were produced from the 2019 crop – slightly more than the 1.15m tonnes seen for 2018 when yields were affected by the summer drought.  The final average yield for 2019 was 77.7 tonnes per Ha.  This is above the five year average of 75 tonnes per Ha but pretty much on trend, due to rising yields over recent years.  Looking to the 2020 crop, the company expects a slight rise in the planted area from 100,000 Ha to 104,000 Ha.  With average yields, this should produce a crop size similar to the one just processed.

Epoxiconazole Phase Out

The active ingredient epoxiconazole will start to the phased-out from this autumn.  The Chemical Regulation Division (CRD) of the Health and Safety Executive has announced that sales of products containing the widely-used fungicide will end as at 31st October 2020.  Product already on farm can continue to be used until 31st October 2021.