Category: Arable

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.

Crop Area Projection Updates

At last the weather has turned out nice.  The rain has stopped, at least for now, but certainly for long enough for many farmers from Oxfordshire to Newcastle to complete (and in some cases even start) their drilling.  At the time of writing, many farmers are busily trying to get as much of their spring seed in the ground as possible.  Seed merchants are reporting low availability of late drilled seeds like maize and spring beans as a result of high demand.

Last month we published an article commenting on the second Early Bird survey that we support AHDB with.  This is the survey that assesses what has been planted and what growers intend to plant in the UK.  It included planting intentions which, at the time, left opportunity for winter wheat to be planted.  The rain did not stop in time for winter crops to be drilled and also may have curbed the spring drilling window for some growers leaving, we believe, a high chance of elevated fallow land and grass this year compared with normal. Our updated projections on crop areas look as follows:

If this projection is correct, it would leave potentially the lowest wheat area planted in the UK since 1978/79, and the highest spring barley area since 1987/88.  Some projections expect spring barley to exceed 1 million hectares but we are not convinced there is enough time for that to occur.  Oilseed rape area might end up being the lowest since 1988/89.  Even so, it still might be the highest we see again because the difficulties of growing the crop this year have been only partly because of the rain, and partly because of the flea beetle.  The fallow land area we have suggested here would be the highest level since set aside was mandatory back in 2007.  For 2020 autumn drilling and the 2021 harvest, we would expect a high proportion of farmers very keen to capitalise on the first wheat opportunity, possibly planting a little earlier than this year too.  Hold tight for a big wheat crop next year.

Crop Market Summary

The demand for bread and therefore milling wheat is high.  People eat chicken and eggs at home more than beef and lamb so the demand for feed wheat has also increased.  Old crop prices have benefited from the surge in short term demand, which farmers have benefited by selling into.  The fall of Sterling has given grain prices a considerable boost (see earlier article), and also made the UK wheat price competitive for exports, so new shipments have been sold into continental destinations this month.  New crop feed wheat hit contract highs.  Globally, wheat has also risen on news of the Chinese buying US wheat, and a considerable 240,000 tonnes in two shipments.  This is the first such deal in three years.

The consumption of alcohol (especially beer) out of the house has disappeared and people drink less beer at home (and alone) than when they are out.  And this is global.  Hence the malting barley premium is declining sharply.  The combinable crop price matrix is shifting because of (presumably) short term, sudden, changes in the way that people eat.

Crude oil has fallen by 60% to its lowest level since 2003 as the demand for travel falls.  The demand for biofuel has therefore disappeared too.  This has a greater impact on the vegetable oil market through bio-diesel than the ethanol market into cereals.  This has played a bearish factor in the oilseed rape market, meaning prices have not rallied on the fall in Sterling as much as the grains have done.

The pulse market has been relatively light, with reduced international business, partly because of the virus, but more because of the freshly harvested Australian bean crop that dominates business into North Africa at this time of year. Usually by Easter the UK bean market is more or less finished.

Grain merchants and other crop production businesses remain open as the food supply industry is classed as an essential business.

Cereals Event Cancelled

As with so many other events, both in the UK and around the world, the Covid-19 outbreak has caused the cancellation of the Cereals Event.  This was due to be held in Cambridgeshire on the 10th and 11th June.   The team behind Cereals are looking at undertaking online activities over the two days the event was meant to take place.

Arable Markets

As of late February, the price difference between new crop feed wheat and new crop feed barley is £23 per tonne. Clearly, the market has gathered that there will not be much wheat harvested.  It looks like it is also assuming a large area of barley will be harvested compared with usual.  Clearly, the chances of this are beginning to erode as well.

If we work on 1.3 million hectares of wheat plated in the end, (we really don’t know), an area not seen since the mid 1970’s, and use a low yield of say 7 tonnes (because surely what has been drilled is not in good condition), we get to 9 million tonnes, about 56% of last year’s 16.2 million tonne wheat harvest.

So how will we provide for the millers and many other consumers of wheat? Some have talked of a generous carry from old crop into new. This is a possibility, for wheat, because there is a full price carry, i.e. the price of a spot sale is does not fall as new crop becomes available as is ‘normal’.  November 2020 wheat is about £12 per tonne dearer than the spot position.  This may be tempting for some to think of storing wheat beyond next harvest.  But for many, the incentive will not be enough, and many will not be able to hold off that long either even for cashflow reasons, though many farms will have considerably lower costs this year.

We can always import wheat, some will already have been procured no doubt, but the physical facilities to import grains are not as good as for exports, simply as we don’t normally have to do it.  And by January, we might have tariffs to contend with.  Other consumers, particularly the feed mills will be able, at least in part to switch to benefit from that large discount for barley.  We may notice that price gap close a bit when this starts.

It is too early to make such crop production projections for barley as more time is still available for drilling subject to a change in the weather. Oats too, might be up on previous years and pulses, if the rain stops could be very high too. But all these high area possibilities depend on one thing stopping, and currently there seems little immediate prospect of this.

Crop Areas

The AHDB’s Early Bird Survey of cropping and planting intentions for harvest 2020 was repeated in Mid-February. It shows a significant drop in winter cereals area, even more than in November (when it was first undertaken).  For example, the winter wheat area is forecast to fall by 27%.

The table below shows a summary of the Early Bird results.  Changes in cropping area have been extrapolated onto the data from Defra’s provisional 2019 UK June Survey to produce forecasted crop areas for the 2020 harvest.  Already, they are now looking rather optimistic.

As it included the planting intentions as well as what was already drilled, it captured farmers’ then still eager plans to plant in late February and Early March.  If, at that point, the weather had been anything near ‘normal’ for the time of year, then drills would be coming out early next week.  But that was all ahead of the onset of Storm Dennis and before the full impact of Ciara was appreciated which jointly kyboshed that.

 

Early Bird Survey (EBS): GB Crop Areas for Harvest 2020 – source AHDB
‘000 hectares DEFRA June Survey 2019 EBS Forecast Harvest 2020 % Y on Y change
Winter Wheat 1,790 1,304 -27%
Spring Wheat 26 200 +672%
All Wheat 1,816 1,504 -17%
Winter Barley 453 347 -24%
Spring Barley 710 1,042 +47%
Oats 182 229 +26%
Other Cereals * 51 54 +5%
Oilseed Rape 530 361 -32%
Other Oilseeds‚ ** 17 25 +47%
Pulses 178 226 +27%
Arable Fallow 224 336 +50%
Other Crops on Arable Landƒ *** 719 756 +5%
TOTAL 4,880 4,880
* includes rye, corn and triticale, ** includes linseed & borage, *** includes s. beet, potatoes, vegetables, Maize (33%) and temp grass (20%)

Much of those plans are now not likely to happen. Every day that rain continues to fall (and more is coming), is now gradually tightening the drilling window for spring cropping throughout so much of the UK.

Your Editor has spent much of this week (24th Feb onwards) travelling by train.  If the views from the window are anything to go by, pretty much the entire country north of the M4 and south of Edinburgh are in a similar condition; flooded or saturated with sitting water on untended fields.  Bales of straw still sit un-gathered in puddles of mud.  For those fields that are drilled and the crop has emerged, it is becoming increasingly evident that most fields have large bare patches – up to 40% in some cases.

The water appears to have nowhere to go and the rivers are a rich brown, telling of the topsoil that has been washed away.  We expect the soil structure of many fields, even those that have not had root crops, will be in a poor state and take a season or more to correct.  In parts of central England, the only drilling since October has been on land that had cover crops on them.  Perhaps this will be a lesson to the industry to consider these crops more seriously.

The Early-Bird Survey is undertaken each autumn to assess national cropping intentions.  It is carried out by The Andersons Centre with the help of the Association of Independent Crop Consultants (AICC) and other agronomists.  Over 80 agronomists took part in this year’s survey contributing over 615,000ha of arable land stratified across all regions of Great Britain.

Three Crop Rule

At the time of writing the NFU is still campaigning for an exemption to the Crop Diversification rules (‘three crop rule’) under BPS Greening.  Defra has not announced any derogation as yet.  Last month we reported that RPA had released guidance for claimants (see https://abcbooks.co.uk/wet-weather-three-crop-rule/).  It is perhaps worth reiterating that fallow land is classed as a ‘crop’ and that spring and winter varieties are also treated as separate crops based on the variety grown and not the date when sown.  In addition where a crop has been planted but subsequently fails it can be counted as the original crop (field records will need to be kept if evidence is required on inspection).  Lastly, for those who will struggle to get anything or very little drilled, there are also exemptions to the Crop Diversification rules; where more than 75% of the arable area is left fallow (or is used for temporary grass or planted with leguminous crops) the three crop rule does not apply.