Category: Arable

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).

Sugar Imports

The UK will be able to import an extra 260,000 tonnes of raw sugar without tariff from the start of 2021.  This could have significant impacts on the price of home-grown sugar beet.  Included in the Government’s announcement of the UK’s Global Tariffs (UKGT) – see May article – was a pledge to allow additional volumes of imports under a Autonomous Tariff Quota (ATQ).  This is the only such volume-based tariff reduction yet announced.  It is believed that others such as Tariff-Rate Quotas (TRQs) on beef etc. are due to be set out in the autumn.  The UK consumes around 2m tonnes of sugar each year.  Around 1.1-1.4mT is produced by British Sugar from UK beet.  The shortfall of 0.6-0.9mT has been made up from a variety of sources – some beet sugar imports from the EU, small amounts of tariff-free cane imports from high-cost/low-income countries in Africa, the Caribbean and elsewhere, plus some cane sugar coming in under existing EU Free-Trade Agreements (e.g. with South Africa).  However, most has been imported cane sugar (e.g. circa 0.45mt in 2018/19) that has paid the EU’s import tariff – €339 per tonne.  This is exclusively processed by Tate and Lyle.  Under the new arrangements, the UKGT has been set at £280 per tonne for cane sugar.  However, the roll-over of existing EU FTAs by the UK means that around 0.14mT of tariff-free cane will be able enter the UK market, plus volumes from least-developed countries.  Then the ATQ adds another 0.26mT that has not been there historically.  This might make sense if the UK does not do a trade deal with the EU – the new cane volume can replace imports of beet sugar from Europe which would then be subject to the UKGT tariff.  However, should a deal be done, then EU imports will continue to be tariff-free, and the additional cane volume offered will simply increase volumes and drive down prices on the UK market.  It may also displace imports from the small-scale cane growing countries in favour of imports from Brazil and Australia.

AHDB Planting Survey

The wet weather through autumn, winter and into spring has seen a huge swing to spring cropping, and for oilseed rape, the added pressure from cabbage stem flea beetle (CSFB) has seen the planted area drop to its lowest for nearly 20 years.

According to the AHDB’s 2020 Planting and Variety Survey, GB winter wheat plantings have seen a year-on-year decline of 25% to 1,363 thousand hectares.  Every region has recorded a reduction in plantings, but the most significant declines have been seen in the East Midlands (-32%) and Yorks & Humber (-32%).  The East Midlands has seen a large shift to spring wheat plantings, which account for 34% of total wheat plantings in the region, up from just 4% last year.  With regards to varieties, Skyfall has been the most popular variety, because of its late planting capabilities.  It is estimated that Nabim Group 1 and 2 varieties made up 41% of the area in 2020 compared to 36% last year.

The total GB barley cropped area has recorded a 19% year-on-year increase to 1,358K hectares, but this is due to producers being ‘forced’ to shift to spring plantings, due to the persistent rainfall over autumn and winter.  The winter barley area (not surprisingly) fell by 34% to 296K hectares, with again the East Midlands and Yorks & Humber recording significant declines of -52% and -37% respectively; both areas which were badly impacted by the weather.  As a consequence, spring barley plantings have recorded a 52% increase on the year to 1,063K hectares.    According to the AHDB, 74% of the GB barley area is malting barley varieties; last year it was 56%.  The sudden switch to a very dry spring may compromise yields though.

The area of oats has seen a small, 2% decline in Scotland, but in England as an alternative to winter drilling and a replacement for OSR the oat area has increased by 26%.

The problems of CSFB in the oilseed rape crop have been well documented.  This, coupled with dry planting conditions and then persistent rainfall has seen the OSR area in England decline by 28% on the year to just 355K hectares; the lowest area since 2002, (Scotland saw a small, 2% rise).  The crop has seen significant reductions in the East Midlands (-35%) and the East (-28%), both areas badly affected by CSFB, which appears to be spreading north and west.  Added to this is the crop that is in the ground is not looking very good; 15% is reported as being ‘very poor’ and 26% as ‘poor’ meaning yield is expected to be low and the average could be the lowest recorded this millennium.

The table below summarises the cropped areas.  The full AHDB Planting and Variety Survey can be found at https://ahdb.org.uk/planting-variety-survey

Covid 19 Implications for UK Fruit & Veg

A recent report has found employment costs due to Covid-19 have increased by between 6% and 15% in the UK fruit and vegetable sector.  The report prepared by Andersons Midlands and commissioned by the NFU, the British Growers Association, British Summer Fruits and British Apple and Pears looked in particular at four crops; asparagus, strawberries, lettuce and apples.  It found Covid-19 has increased the costs of production for all fruit and vegetable growers, most significantly the costs of employment.  It identified five key areas which have attributed to the increase;

  • worker availability and recruitment
  • training
  • accommodation
  • transport & logistics
  • operations

The full report can be found at https://britishapplesandpears.co.uk/wp-content/uploads/2020/07/Andersons-Covid-19-Report-Fruit-Veg-Costs-of-Prodn.pdf

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.