Category: Arable

Early Bird Survey

The areas of wheat, winter barley and oats look set to rise for the 2019 harvest.  In contrast, the OSR, spring barley and other break crop areas are anticipated to fall compared 2018.  These findings come from the AHDB Cereals and Oilseeds annual Early Bird Survey, undertaken for them by The Andersons Centre assisted by the Association of Independent Crop Consultants (AICC) and other agronomists.  The provisional results have been used to extrapolate from the 2018 UK June Survey to produce forecast crop areas for the 2019 UK harvest; these are outlined in the table below.

Early Bird Survey (EBS) – Provisional Results

Estimates of GB Crop Areas for Harvest 2019
‘000 hectares

DEFRA June Survey 2018

EBS Forecast Harvest 2019

% Y on Y change
All Wheat

1,797

1,864

4%
Winter Barley

394

444

13%
Spring barley

762

735

-3%
Oats

174

190

9%
Other Cereals *

51

38

-25%
OSR

601

582

-3%
Other Oilseeds **

27

19

-28%
Pulses

199

183

-8%
Arable fallow

269

228

-15%
Other Crops on arable land ***

716

702

-2%
TOTAL

4,990

4,986
Source: The Andersons Centre/AHDB, Defra

*crops included rye, corn and triticale

**crops included linseed and borage

***crops included s. beet, potatoes, vegetables, Maize (33%) and temp grass (20%)

Good conditions and higher prices in the autumn typically see more winter cropping, which has been evident this year.  The wheat area is forecast to rise by 4%, to 1,864,000 hectares.  If this is correct it will be the highest wheat area since 2014 and will be 28,000 hectares more than the past five-year average.  For similar reasons, the winter barley area is also expected to see a considerable rise in area, by 13%.  In contrast the spring barley area is forecast to decline by 3%.  This will be the first reduction since 2014 if correct.

The oat area continues to rise.  After seeing a considerable increase in 2018, is expected to rise by a further 9% to 190,000 hectares in 2019.  This will mean the oat area has risen by just under 50% since 2015.  Oats now appear to be seen as a suitable break crop to substitute for OSR in the rotation.  New spring varieties are liked by millers and are also good from a grass weed perspective.  In addition, oats, like other combinable crops, have increased in value over the past year, meaning they are now being considered more seriously especially as the profitability of pulses declines.

The harvested area of OSR is expected to decline by 3%.  Anecdotal evidence and seed sales actually suggest the area planted was similar or even higher than last year, but dry conditions affected germination and flea beetle attack means the harvested area is forecast to decline.  Pulses are also expected to experience a fall in area by 8%; similar to last year.  Last year’s disappointing crop will have discouraged producers from growing again this year, but the reduced yield also means there is a seed availability issue, meaning growers have had to find an alternative crop.

The survey is carried out over the first couple of weeks in November and has in the past been an accurate result of the areas harvested.  Over the last two years the area surveyed has more than doubled to almost 570,000 hectares.  Final results, including regional breakdowns will be released once Defra releases its final results for 2018; this is expected in December.

November Arable Update

There have been few major fundamentals at play over the last month in the grain markets resulting in small fluctuations.  For example, the wheat futures price for May 2019 has fluctuated between £171 and £174.50 per tonne over the whole month, due to various minor factors. This is often the case in the build up to Christmas, when business from millers, maltsters, compounders and other grain users becomes settled, and there are no new surprises in terms of production.

The closure of the two bioethanol plants in the North of England over the last 2 months (reported on in October) means the market place has had to re-calculate the trade balance expectations. Going from a considerable net import requirement for wheat, to a situation of an exportable surplus, impacts UK grain prices and, importantly,  logistics. Not only did wheat prices fall, but also, the availability of grain haulage vehicles dramatically rose. The bioethanol plants had been taking large tonnages of grain meaning the haul was, on occasions over long distances, meaning less grain was delivered. Now, the marketplace for hauliers is much looser, and haulage companies have less chance to dictate terms or prices. Where some delivery slots were being missed when the plants were operational, these are now being delivered to.

Before the closure of the Southampton Hovis flour mill (also reported last month), the UK milling industry was, it transpires, considerably over capacity. It seems Hovis may be able to increase its milling volume in its remaining mill in Wellingborough, to still meet some of the contracts it was supplying from Southampton. Furthermore, other firms have some capacity to increase throughput without building any further mills, meeting any other surplus flour demand. We can conclude that the Hovis closure will not affect total UK bread-wheat consumption, whereas the bioethanol plants will affect feed wheat demand.

It is also still not clear whether the Ensus and Vivergo bioethanol plants are closed for good or just for a while. Neither statements were clear, although we understand that the Vivergo plant has taken its staff of 400 down to about 40.

TRADE

China has bought about 60,000 tonnes of French wheat. The volume sold is less relevant than the trade itself. Whilst the business takes some of the EU surplus out of the local marketplace, which is inevitably bullish for EU grains, this is the first Chinese business for EU grains for apparently as much as 5 years. That is more significant, especially as China, according to the International Grains Council and the USDA owns about half of all global grain reserves. It poses questions about the Chinese grain holding strategy and their attitude to purchasing EU grains.

Barley

Very little has happened in the barley market this month either. As Adam Smith pointed out in the 1700’s, when not much interferes with the marketplace of a commodity, its price tends to head towards the lowest cost of production. Perhaps this suggests if you can’t produce it for the current price, note that somebody else clearly can. Last month we reported that barley had, for a while, been higher in value than wheat (which has a higher nutritional value). Barley is normally about 10% lower in value than wheat and this price spread has started to correct itself .

OSR

The oilseed rape market has also been relatively slow, moved more by currency fluctuations than the fundamentals of supply and demand. Note the Southern Hemishphere crop will start going through the combines within a month and might then have an impact on EU values.

Pulses

The very small and poor quality crop from 2018 is not attracting overseas buyers to our marketplace this year. Despite this, Pulses are comparatively well priced compared with other proteins. These two points suggest pulse prices have more downside than upside (compared with the combinable crop benchmark of feed wheat). The low quality and availability of seed means the 2019 crop is going to cover a smaller area than usual for both winter and spring crops.

Potato Harvest

Potato growers and buyers are faced with a range of yield and quality issues as the result of one of the driest summers on record.  There is a feeling that a catastrophic harvest was avoided when temperatures eased and some rain fell in August, following a scorching June and July.  Those growers who could irrigate (around half nationally and 60% in England) were able to deliver yields that were comfortably above 40 tonnes per hectare, with some crops even delivering 50t per Ha.  But those who could not irrigate struggled to get yields of more than 20t per ha, with a range of quality issues including small tubers, scab, and secondary growth.  One welcome piece of news was that the hot and dry conditions meant that there was very little blight or other disease, saving spraying costs.

The drought-impacted harvest means that Great Britain may produce a crop of less than five million tonnes for only the fourth time in recorded history, the others being the rain-affected 2012 crop and the infamous drought years of 1975 and 1976.  As a result of over-production and low prices from last year’s crop, the AHDB estimates that British growers planted 119,000 hectares of potatoes this year; down 3% on 2017 and the third smallest area ever.  The chart below shows planted area and production from 2009, with estimates for 2018.  It would take an average national yield of 42 tonnes per hectare to deliver a five million tonne crop, but many growers are reporting a 15% drop in yield at somewhere nearer 40 tonnes, giving a total yield of 4.76 million tonnes.

GB Potato Production 2009-2018 – Source AHDB

The lack of potatoes and quality problems have inevitably caused tension in the market and the first free-buy material of the season was making a record £275 per tonne or more.  Values have eased a little since then as more potatoes have come on the market and growers seek to offload stocks that might not store well, but the trade is resigned to paying around £150 per tonne more for open-market potatoes than it did last year.  The whole industry will be hoping that does not lead to excessive rises in consumer prices putting shoppers off potatoes.

The UK is far from being alone in suffering from a small crop, with Belgian and German growers seeing yields plunge by more than 20% as a result of the drought.  This could mean an export market for any British growers who do have spare stocks, especially of processing potatoes.

The ripples of this exceptional year will be seen next season too.  Buyers are expected to increase contracts to ensure supplies and growers may plant early to fill in any old season gaps.  However, they may not be able to get the seed they need because of drought-related shortages and if there is not adequate winter rainfall then they might face irrigation restrictions that could lead to another small crop.

Unusually for the end of October, growers are still lifting potatoes and those still in the fields will be hoping that the last of their crop will not be impacted by more extreme weather, either in the form of late autumn downpours or early frosts.

October Crops Update

Growing crops are generally in good condition throughout most of the UK, having had a moderately good start to the season.  Recent rains have been welcomed and will help establishment across much of central England before winter dormancy sets in.  In Scotland, winter crops are looking about as well as they have in recent memory, sowing conditions have generally been excellent and recent weeks of warmth and sunshine have allowed everything to establish and grow on well, with any autumn herbicides and fertiliser applications required being easy to achieve.

Cereal prices have been lacklustre at best, bearish at worst this month with wheat falling more than barley. Domestic values have suffered from the UK wheat processing closures (see other article).  Globally, prices took a hit towards the end of October when the International Grains Council updated its grain supply and demand figures, adding 12 million tonnes to global wheat production, but only 6 million to consumption. Stock levels are now seen 12 million tonnes higher than thought in September, making overall year-end stock levels only slightly lower than last year.  Black Sea supply has remained strong, with high wheat and coarse grain exports, pressurising the entire EU feed grain marketplace.

Despite that, the UK feed barley market has been underpinned with export deals beyond the EU border. This not only bodes well for post-EU trading prospects but also changes the dynamics of UK trade.  More distant exports tend to be larger volumes and therefore bigger vessels requiring deeper ports, most of which are in the south of England, conveniently, closer to the South Mediterranean destinations.  Also, most surplus barley is in the south, far from the northern maltings.  Demand for malting barley samples from UK maltsters has slowed pre-Christmas now.

Oilseed rape has been a concern in much of Central and Eastern England because of a high prevalence of flea beetle.  Currently, we are working on a planted area the same as last year, but with 5-7% of the crop being written off.  It appears this has been caused by the dry soil conditions, and warmer than usual temperatures this autumn.  Temperatures have fallen at the end of the month and rain has also been persistent, so this might help curb the problems.  Yet many parts of Northern Europe, including France, Germany and Poland have also reported lower germination levels because of the dry warm weather conditions.  OSR prices are holding relatively steady in the light of the crop establishment issues.

 

Wheat Processor Closures

Within 6 weeks, there have been announcements of 3 major wheat processing plants closing in the UK. Last month, we reported on the closure of Vivergo, one of the two very large bioethanol-manufacturing plants. The other bioethanol plant, Ensus, has now also announced similar plans, to close at the end of November. The third closure is of the Hovis mill in Southampton. The three locations between them have purchased and processed as much as a million tonnes of UK-grown wheat each year they have been operational.

The Ensus announcement suggested the plant would remain closed but ready to become operational again but did not state when that might be or how long they might remain in that limbo before decommissioning the site entirely. It claimed the closure was down to low bioethanol prices. Bioethanol production has always been a tight-margin and high-risk business, with both the raw materials and the finished products (including livestock feed), all being commodities, giving the manufacturers little control of input costs or output price. Furthermore, the commodities are all valued independently. When grain prices have been high and oil prices low in the past, then these facilities have had extended closed periods for maintenance or been mothballed. Ensus for example has had 4 extended closed periods in its short life. The other risk associated with biofuels is the dependence on government subsidies; both the capital required for their establishment and the ongoing per-litre support. Ensus opened in early 2010 and Vivergo followed in July 2013 meaning one was only 8 and the other 5 years old.

Hovis is closing its Southampton mill at the end of this year and is also selling its Selby and Manchester mills to Whitworth Brothers, leaving only one remaining mill in Wellingborough. Whilst a considerably smaller loss than 2016, Hovis lost almost £12 million in 2017. This closure means it is not just feed wheat in the north of England that is being lost but also milling wheat demand in the south of England.

The impact on the price of wheat in the UK has already been felt with a £5 per tonne reduction in domestic values in the week. What was initially expected to be a year with a wheat deficit in the UK, making the UK a net wheat importer once again has now, within the space of just over a month changed totally. After several years of gradually rising wheat processing capacity in the UK, coupled with declining wheat production, the closure of these three sites means that a surplus is likely again most years.

June Survey of Agriculture 2018

Defra has released its provisional estimates from the June 2018 Survey of Agriculture and Horticulture showing planted areas in the UK for the main crops, and also estimates for crop production.  The key results for the arable sector are summarised in the table below.  The data is only provisional at present, final results are expected to be available on 20th December.  Wales does not produce provisional results, so 2017 data has been carried forward (except for cattle numbers) to allow UK figures to be presented.

Provisional results show the wheat area has increased marginally but with yields declining, the overall production has fallen by 5.1% on the year.  The total barley area, after increasing in recent years, has fallen but a closer look at the split between spring and winter reveals the spring crop area has continued to increase, although at a slower rate than last year, whilst the area of winter barley has reduced again.  Producers continue to switch to spring crops to facilitate weed (blackgrass) control and to spread workloads.  In addition, the economics of growing spring malting barley are better than winter feed barley in many cases.  The oat area has continued to increase, but a poor harvest has reduced the provisional yield by 9.2% compared with 2017, resulting in overall production for the year down by 2.1%.

UK JUNE CENSUS AND CROP PRODUCTION
AREA – ‘000 Ha 2015 2016 2017 2018 Change 17-18
WHEAT

Yield (tonnes per Ha)

Production (‘000 tonnes)

 1,832

9.0

16,444

 1,823

7.9

14,467

 1,792

8.3

14,837

 1,797

7.8

14,086

 +0.3%

-5.3%

-5.1%
BARLEY

Winter Barley

Spring Barley

Yield (tonnes per Ha)

Production (‘000 tonnes)

 1,101

442

659

6.7

7,370

 1,122

439

683

5.9

6,655

 1,177

423

754

6.1

7,169

 1,157

394

762

5.7

6,606

 -1.7%

-6.7%

+1.1%

-6.3%

-7.9%
OATS

Yield (tonnes per Ha)

Production (‘000 tonnes)

 131

6.1

799

 141

5.8

816

 161

5.4

875

 174

4.9

857

 +7.8%

-9.2%

-2.1%
OTHER CEREALS 35 45 52 51 -1.8%
TOTAL CEREALS

Production (‘000 tonnes)

 3,100

24,734

 3,132

21,967

 3,181

22,999

 3,178

21,742

 +1.6%

-5.5%
OILSEED RAPE

Winter Oilseed Rape

Spring Oilseed Rape

Yield (tonnes per Ha)

Production (‘000 tonnes)

 652

645

7

3.9

2,542

 579

570

9

3.1

1,775

 562

554

9

3.9

2,167

 601

593

8

3.4

2,051

 +6.8%

+7.0%

-6.1%

-11.4%

-5.3%
LINSEED 15 27 26 25 -6.2%
SUGAR BEET 90 86 111 116 +4.5%
POTATOES 129 139 145 142 -2.1%
FIELD BEANS 170 177 193 158 -18.0%
COMBINING PEAS 44 51 40 41 +1.4%
MAIZE 187 194 197 224 +13.3%
FALLOW 214 262 241 269 +11.5%
Source: DEFRA    2018 data is provisional

After recent year-on-year declines, the oilseed rape area rose by 6.8% compared with 2017.  But the difficult weather conditions during the year caused a fall of yields resulting in overall production, provisionally, declining by 5.3%.  The lack of pest and disease control options were a problem in oilseed rape production, with anecdotal evidence that flea beetle has been an issue this current planting season too, in areas not normally as prone.

The new sugar beet contracts offered in 2017 caused a significant increase in planted area, this increased further in 2018 and is getting nearer to its ‘traditional’ area of circa 120,000 Ha.  But a difficult growing year in 2018 and lower prices for 2019 are likely to slow the pace of increase.  The potato area, after recent year-on-year increases has declined and with yield expected to have taken a hit, production will have fallen (see potato article).

The the ban on PPPs on all EFA land for 2018 caused the bean area to decline by 18%.  The full crop area and production figures can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/747210/structure-jun2018prov-UK-11oct18.pdf . The first statistical indications of plantings for next year will come next month with the publication of the AHDB’s ‘Early Bird’ Survey.

Combinable Crop Markets

Wheat Supply and Demand

The news about the domestic marketplace for old crop (newly harvested) wheat is dominated by the announcement of bioethanol manufacturer Vivergo closing down, apparently for good (see accompanying article).  The plant claimed to have taken over 1 million tonnes of domestic feed wheat, largely from the Yorkshire and Humberside area.  The addition of this tonnage to the grain consumption figures will certainly have added considerable value to the local wheat price.  However, with such sporadic operation, with closed periods, partial opening and apparently operating at less-than-full capacity, it might be less noticed than the headline figures suggest.

In addition, for every tonne of wheat supplied to the plant, about a third ended up as animal feed; the adjustment in the animal feed market might also reduce the impact to the combinable crop farmer.  We believe the other large cereals-to-biofuel plant, Ensus, remains operational.

Since the early 1990’s the UK’s consumption of wheat has gradually risen from less than 11 million tonnes per year to a figure heading towards 16 million tonnes per year, a rise of nearly 50% of wheat use.  Consumption continued to rise until it peaked in 2016/2017.  It is possible that this will mark a turn in the overall volume of wheat processed in the UK.  Without a corresponding rise in wheat production, the UK turned from being a net wheat exporter into a net importer.

The chart shows the production and consumption of wheat in the UK over quarter of a century.  The orange line shows production fluctuating within a volatile 12-17mt range, and the blue columns the gradually rising and more predictable consumption figures.  The 2018/2019 production figures assume a 14 million tonne production (based on 7.9 tonnes per hectare and 1.77 million hectares).  The consumption forecast is the rolling 5-year average consumption less an estimated 600,000 tonnes of consumption by Vivergo. Despite this reduction in expected demand in the coming year, it still leaves the UK as a net importer of wheat.

UK Wheat Production and Consumption

Market Outlook

Full specification milling wheat is trading at approximately a £15 per tonne premium, relatively firm, largely on the weakness of the feed market, rather than strength of the milling prices.  Feed demand for both wheat and barley are reported as light, which has resulted in lower prices.  However, the cooling temperatures and recent sharp frosts might send some cattle indoors and curb grass growth, fueling demand, especially for barley, as wheat is primarily fed to non-ruminants that are housed all year.

The malting barley market is comfortable there is ample good quality barley available this year, and probably solely within the contracted tonnage.  Those with uncontracted  tonnages might think carefully about how long they should be kept for; if a reasonable price is bid, it might be prudent to sell to it.

There is a relatively large amount of mediocre oats this year, meaning the price for feed samples is not great (feed barley is trading close to wheat, but poor oats are lower), but those with good quality oat samples are achieving a reasonable milling price.

Bean harvest in the UK has been poor.  Some consider the crop to be down by over a quarter, and some think 40%.  This has its implications regarding supplying ongoing customers and export outlets the UK has cherished, but also, the availability of seed beans is a high concern for seed merchants.  It might just be that one poor harvest could lead to a low drilled area for next year.

There are reports of considerably less oilseed rape being planted this year, and of that which has gone in, a large proportion is either not germinating because the ground has been too dry or has fallen victim to the flea beetle.  Grubbing up and restarting has been common, especially in the Midlands areas.

Internationally, the USDA considers global wheat production is 25 million tonnes lower this year than last, but consumption will be up by 2 million tonnes.  Stocks are expected to fall 13 million tonnes making the global marketplace that bit tighter.  For coarse grains (feed grains), whilst the analysts think the production has increased, so will consumption.  So also leaving a stock drawdown, in this case of almost 40 million tonnes to 185 million tonnes.  This is bullish of course, but much of that information is probably already built into the market prices.

Vivergo Closure Proposed

Vivergo has announced a proposed cessation of production as of the 30th September.  Vivergo is the UK’s largest manufacturer of bioethanol, a biofuel made mostly from domestic (UK-grown) wheat.  Its announcement implies it is a permanent cessation and therefore presumably firm closure, although the wording it not very explicit.

The company blamed the UK Government’s ‘lack of pace to introduce E10 biofuel’, a bend of between 9% and 10% biofuel in petrol.  The regulations currently encourage fuel manufacturers to incorporate 5%  biofuel into their fuels, although Department of Transport data from August 2018 shows total ‘renewable fuel’ accounted for 3% of road fuel in 2017/2018.  Most of this is biodiesel from waste vegetable oils.

The Vivergo website states that the firm uses 1.1 million tonnes of feed wheat per year, but other sources have suggested the plant has seldom operated at full capacity, for example having had a 4-month closure from December 2017 to April this year.  Notwithstanding this, the closure, if permanent, would have a depressing impact on the price of wheat in the Yorkshire/Humberside area.

 

 

Beet Price 2019

The beet price for the 2019 crop will fall to £19.07 per tonne.  This compares to the current price, for the crop just about to be harvested, of £22.50 per tonne.  The fact that the price announcement is later than usual suggests that negotiations between British Sugar and the NFU were (even) more difficult than usual.  The EU sugar price is at very low levels, so the processor was likely pushing hard to reduce the price paid for its raw material.

A number of other points have been agreed;

  • there will be no crown tare reduction for all contracts agreed from 2019 onwards.  It is stated that this raises the price from the headline £19.07 per tonne to the equivalent of £20.42 under the terms of the previous contracts.  Whilst the wording is not clear, but this implies that those who signed-up for under the 3-year contract options available in previous years will still be subject to crown-tare reductions
  • the 2019 contract will be a one-year deal only; no 3-year contracting options will be offered this year
  • for 2019 the ‘threshold’ EU white sugar price where the revenue sharing mechanism starts is reduced from €475 to €375 per tonne (to reflect low market prices).  This could increase the maximum price by £4.50 per tonne should the sugar market improve (at €1 = 85p).
  • any late delivery payments will be based on the highest guaranteed minimum beet price paid during the campaign – presumably the £22.50 per tonne that will be payable to those who took the 3-year option at 2018 prices
  • Contract Tonnage Entitlement (CTE) performance rules will be widened to include planting sufficient area as an alternative to delivering a specified tonnage

Growers should be receiving contract offers from the last week of September.  BS and the NFU have also agreed to work together to develop a pricing model that shares risk and reward more equally between grower and processor.  This will be piloted for the 2020 crop.

Turning to the current crop, British Sugar has announced that it expects a ‘much lower’ harvest than last year’s 1.37m tonnes of sugar.  The 2017 crop delivered an average beet yield of 83.4 tonnes per hectare, but 2018 will not match that due to the late drilling and moisture deficits over the summer.  The harvest campaign will commence on the 26th September with the opening of the Wissington and Bury St Edmunds factories.   

Crop Areas

DEFRA has released the results for its final estimates of crop areas for England from 1stJune 2018 Survey. After three consecutive years of decline, the wheat area has increased marginally (by 1%) to just under 1.7 million hectares.  The OSR area, which had seen reductions for the past five years, has also recorded an increase in 2018; up by 7.6% to 563,000 hectares.  In contrast, the barley area, which had increased for the last three years (particular in the spring barley area) has seen a 2% decline.  This though is mainly due to a fall in the winter barley area, as the spring crop has seen a very marginal increase of 0.1%.  Other notable changes include the 17.9% drop in the field bean area, likely to be due to the ban on PPPs for beans grown to satisfy EFA requirements.

A more detailed analysis will be given next month when the full UK results are available.  The statistical release can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/740136/structure-june18-final-eng-13sep18.pdf