Category: Arable

AHDB Planting Survey

The AHDB’s 2018 Planting and Variety Survey shows the area of oilseed rape has increased along with that of spring barley and oats compared with 2017.  The GB wheat area has seen a further decrease, so has the winter barley area.  The table below shows the key results.

Wheat plantings are estimated to have declined by 2% compared to 2017, with the largest reductions seen in the Eastern Region and the South East & London, where black-grass remains real problem.  With 2017/18 wheat end of season stocks estimated to be the lowest since 2013/14, yields will have to be above the five-year average for GB wheat supply to increase in 2018/19.  With the current hot and dry weather now expected to impact yields, this looks unlikely.

Planting Survey– source AHDB
‘000 Ha – GB 2016 Final 2017 Final 2018 Estimate % Change 17-18
Wheat 1,815 1,783 1,744 -2
Winter Barley 432 416 385 -7
Spring Barley 668 740 768 4
Oats ② 139 154 156 1
Cereals Total ① 3,053 3,097 3,010 -3
Oilseed Rape ② 579 562 608 8
Total 3,632 3,659 3,618 -1

① excludes ‘other cereals’ such as rye, triticale etc.

② OSR and oats figures for Wales not available yet (4,000 Ha & 5,000 Ha respectively in 2017)

It appears that reduced wheat plantings have been replaced by more oilseed rape in rotations, particularly in the East, as opposed to spring barley which had been sharply increasing in area in the recent years.  The oilseed rape area in England and Scotland has seen its first rise since its peak in 2012, when it was 143,000 Ha more than the estimates for 2018.  The increase is probably due to the better planting conditions for OSR in 2017 compared to the year earlier.

The spring barley area has increased for the fourth year in a row, with increases mainly in Scotland, the North West and Yorkshire, probably in areas unable to plant winter crops in 2017.  The winter barley area has seen a 7% year-on-year decline, leaving the overall barley area unchanged for 2018, but with a greater % of lower yielding spring barley; again it will need above-average yields to maintain production levels.  Similar to wheat, this is unlikely, given the weather conditions and the possibility that some crops may even be required for forage and will be whole-cropped.  Oats have also seen a small increase across England and Scotland.

 

Cereals Event

The attendance at the 2018 Cereals Event, held at Duxford, Cambs, has been announced at 18,000 by the organisers, Comexposium.  This is some 11% lower than those that attended in 2017 when the show was held in Lincolnshire.  It is also some 25% down on the 24,000 visitors that were seen in 2016 when the show was last in Cambridgeshire.  However, the organisers state that exhibitors were generally pleased with the quality of those attending.  Cereals 2019 will be held at Boothby Graffoe, Lincolnshire on the 12th and 13th of June. 

Glyphosate in France

France has established a task force to work on plans to phase-out glyphosate.  It is the French Government’s intention to end the main uses of the herbicide within three years.  The Environment Minister and Agriculture Minister have brought together representatives from agriculture, agri-food, distribution and researchers to assist in the phase-out and have announced there will be a ‘resource centre’ by the end of the year, making existing solutions available to all farmers.

June Arable Market Update

Rain has fallen in Scotland which has helped the late-drilled spring crops there, but for much of England, especially in the East, the dry weather is of growing concern.  The dry conditions are now likely to affect cereals yields on the lighter land, despite the very wet spring.  Some reports suggest the growing season has been curtailed at both ends, meaning less time for yield development.  This is potentially true for all combinable crops including both cereals and oilseeds.  Being a relatively small island on the global stage, the impact a lower harvest size would have on price tends to be relatively small, beyond possibly raising the import requirement for some grains.  However, this factor is raising old crop prices for barley, but for most crops, sufficient carry-over is already arranged by processors.

After the significant rises in prices through May, markets for wheat for this coming harvest did not change over the month to the 25th June, despite about £6 per tonne volatility.  However, the values for 2019 harvest rose by £7.30 per tonne.  The spread of values really only took place since the 22nd June as shown in the graph:

As the chart also suggests, the wide price spread is unlikely to remain so large for long suggesting either the 2019 harvest prices will come back down or 2018 values move up.  However, it also gives an indication of the markets expectation of tighter stocks in the future than there is today.  This coming harvest, a lower global stock level is expected, albeit a small decline; perhaps the expectation for greater declines in the 2019 marketing year is mounting.

Markets elsewhere around the world fell in the month to June 25th; Chicago Soft Red Winter wheat for December 2018 for example slipped by over £15 per tonne.  Since early March through to 12th June, a rise in market prices had been occurring on the back of dry conditions throughout Russia and several other wheat-producing countries; each potentially nearing stages where yield might become impacted by lack of water.  However, the market falls have been entirely political, with rumours of Mr. Trump’s trade barriers reversing Free Trade and hampering almost all global markets, including agricultural commodities.  As is often mentioned, trade wars are seldom helpful.  Indeed, the US wheat market lost 8% of its value because of it, explaining the considerable divergence between US and European price movements.

From the opening of the November 2019 contract (Jan 2018) until 19th June, the markets have been gradually moving in the right direction for long-holders (farmers), with prices for 2019 harvest mimicking the nearer ones (just slightly less volatile).  The declines in the Russian crop as forecast by the USDA and other teams of economists will continue to support prices.  Those who calculate supply and demand tables are suggesting the global wheat stock level is likely to take a reduction this coming year for the first time in five years.

Maize production expectations in the US have been very high this month, with crop ratings at record levels for this time of year with 78% achieving good or excellent condition.  The relationship with this measure and crop yields have not been brilliant in the past, but it certainly demonstrates that a drought (which takes a long time to set in and affects very large areas) is unlikely this year.

US soybeans took a greater price hit than wheat as a response to the developments in the global trade war, as such a high proportion of trade is sold from the US to China and tariffs have been imposed on this trade, which will profit the Brazilians and few others.  US soybeans almost reached 10-year price lows in June.

The old crop pulse trade is now completed.  Traders are reminding growers that this is key time for treating the most common insect pests including black bean aphid and bruchid beetle. Four out of every five downgrades of beans last year were because of the beetle.

EU Renewables Target

The EU has reached a provisional agreement on the next Renewable Energy Directive (RED II).  This sets a target of 32% of all energy coming from renewable sources by 2030.  At least 14% of road fuel must be from renewable sources by 2030.  The proportion of fuel from ‘1st generation’ biofuels (bio-diesel and bio-ethanol) is set at 7% – the same as currently.  This is important for UK arable farmers as this inclusion rate underpins both bio-ethanol demand for wheat, and the oilseed rape market through the EU biodiesel industry.  It had been thought that these 1st generation fuels could be phased-out in favour of fuel-from-waste technologies that are perceived to have a greater environmental benefit and do not compete for land with food production.  Even after Brexit, assuming tariffs are not prohibitive, this legislation will provide a steady demand for oilseeds and cereals.   

Crop Research

DEFRA has announced funding of £5.3m towards crop research as part of its Agri-tech strategy.  The funding will be made available to the John Innes Centre, Rothamsted Research, University of Warwick and the University of York to improve the ‘resilience, sustainability and quality of major crops’.  The agricultural research centres will focus on increasing the productivity of pulses, wheat, leafy vegetables and oilseed rape as part of DEFRA’s Crop Genetic Improvement Networks (GINs).

Bayer + Monsanto

The proposed merger between the agri-input giants Bayer and Monsanto has moved a major step closer with the deal gaining approval for US competition authorities.  As part of the approval, Bayer will be forced to sell around $9 billion in assets including its cotton, canola, soybean and vegetable seeds businesses, its digital farming unit, as well its Liberty herbicide, which competes with Monsanto’s Roundup.  The merger has now gained approval from most jurisdictions, but still needs authorities in Canada and Mexico to agree before the merger can be finalised.  The combined firm will be the world’s largest seeds and pesticides business, with sales of around €20bn per annum (after the divestments).  This compares with around €12bn for DowDuPont’s new Corteva Agriscience division, €11bn for ChemChina (Syngenta) and €8bn for BASF.

Loam Farm Figures

Andersons updated its Loam Farm Model for the 2018 Cereals Event.  The table below shows that returns from the 2017 harvest were very good – in fact, the highest seen since the 2012 harvest.  Prospects for the upcoming 2018 harvest are not quite as good, but the businesses still delivers a reasonable return – once subsidy is included.

Loam Farm is a notional business, located in East Anglia, which has been running since 1991 and tracks the fortunes of arable farming.  It comprises a 600 hectare (1,480 acre) combinable crop farm running a simple rotation of milling wheat, WOSR, feed wheat, and spring beans.  Of the cropped area, 240 Ha are owned and 360 Ha rented on FBTs.  There is a working proprietor plus one full-time man and harvest casual.  The table below shows the results for the 2016 and 2017 harvests, a budget for the upcoming 2018 season, and a forecast for 2019.

Loam Farm Model – source: The Andersons Centre
£/Ha           Harvest Year –

2016

 2017 2018

2019
Output

1,061

 1,205 1,147

1,187
Variable Costs

421

 395 403

427
Gross Margin

640

 810 744

760
Overheads

394

 413 421

441
Rent & Finance

242

 243 242

240
Drawings

77

 77 79

79
Margin from Production

(73)

 77 2

0
Basic Payment

213

 228 219

221
Business Surplus

140

 305 221

221

The improvement in output seen in 2017, compared to 2016, was largely due to higher selling prices (yields were at average levels).  Variable costs dipped for 2017 largely due to a fall in fertiliser prices.  Overhead costs rose – partly as a result of higher fuel costs, but also because the cost of machinery has moved upwards.  Even so, the business made a profit from its farming activity for the 2017 harvest (which has not always been the case for Loam Farm).  Add in a very favourable BPS payment, and the total business surplus is very good

The prospects for the upcoming 2018 harvest are not quite as good – projected yields have been trimmed due to the late, wet spring, notably for the spring beans.  However, forward prices are still reasonable (Loam Farm has already committed some sales) which sees output hold up.  Variable costs have risen.  This is largely due to fertiliser price increases, but these have been partially offset by lower spray usage this spring.  Higher fuel prices are contributing to the rise in overheads.   Overall, the farm is forecast to  just about break-even from its cropping operation.  Once the predicted Basic Payment is added-in, a reasonable business return is seen.

The budget for 2019 shows little change in the overall results.  However, it can be noted that costs have risen (mainly fertiliser and machinery depreciation).  This has been offset by budgeted yields reverting to normal levels.

Whilst the budgeted business surplus for 2018 and 2019 shows a decent return to the proprietor of Loam Farm in the short term, it is also obvious how dependent the business is on the Basic Payment for overall profitability.  With changes coming under a Domestic Agricultural Policy, Loam Farm, and many businesses like it, will have to reassess their operations.

 

Potatoes Update

It has been one of the latest and most drawn-out potato planting seasons for years, with around a fifth of the UK crop still to go in the ground by the third week of May.  Progress could have been a lot slower if it was not for the dry weather earlier in the month, while those with planting still to do were looking at weather forecasts with concerned eyes fearing thunderstorms that could further slow progress and damage seedbeds.  There is the very unusual prospect of some early growers on light Suffolk land lifting at the same time as some of their Norfolk and Cambridgeshire neighbours on heavy land just a few dozen miles away are still planting.

The difficult planting season and low prices from last year’s harvest have persuaded some growers to reduce plantings and it can be expected that the national area will be around 5% smaller than in 2017. Although potatoes do have a particular knack of bouncing back given the right conditions, the bumper yields of last year are unlikely to be repeated, especially for any crop planted after the middle of May. Therefore, there could quite easily be a 10% reduction in the GB crop from the large 6 million tonne harvest last year.  That should lead to higher prices.

Free-buy values for the 2017 crop are failing to increase this year despite late planting and the average price is still hovering under £100 per tonne.  A much-delayed start to the new season might eventually push old crop prices up, but growers are not banking on it.

Planting has been late across Northern Europe because of the cold and wet spring, but crops are in the ground and growing.  That could raise the prospect of another reasonably large crop, some of which could find its way across the English Channel if the British harvest is small.  The European industry is expecting an uplift in 2018/19 prices with the April 2019 futures market at €170 per tonne, which compares to €60 per tonne for similar free-buy potatoes today.

Arable Outlook

Global Cereals

It is very early to spot anything serious in terms of new crop price movements: So much market ‘noise’ is centred around forecasts of weather changes or even current weather.  So currently, there are bulletins of dry conditions in the US, in Australia and South America (e.g. Argentina and Uruguay) and, if these trends continue, there could be problems.  It is this risk that global market traders, mostly speculators are building into their trading positions.  It also makes markets very volatile as forecasts change quickly.  Also, most of these trades are paper trades of futures contracts, not physical sales to millers or feed compounders which means they can be easily cancelled out.  The thing about risk, is that, by definition, it might not happen.

The USDA (US Department of Agriculture) published its first thoughts (forecasts) in May for the forthcoming cropping season (2018 harvest for the Northern Hemisphere and 2019 for the Southern).  The headline figures are reproduced in the table below.  It demonstrates that for all-grains, whilst production is seen rising on 2017/18, consumption shows a larger increase, leaving a reduction of overall grain stocks for the second year (but still the fourth highest ever).

Global all-Grains Supply & Demand at 10 May 2018 (Mt)
 

Production

 Total use

Cl. stocks*
2016/17

2,606

 2,577

654
2017/18 estimate

2,563

 2,580

637
2018/19 forecast

2,578

 2,621

594
Global Wheat Supply & Demand
2016/17

750

 739

256
2017/18 estimate

758

 744

270
2018/19 forecast

748

 754

264
Global Coarse Grains Supply & Demand
2016/17

1,369

 1,356

261
2017/18 estimate

1,317

 1,355

223
2018/19 forecast

1,341

 1,378

185
*closing stocks     Source: USDA  

Taking wheat alone, then we also see a reduction in stocks.  This would be the first year that global wheat stock levels have declined since 2012/13 so whilst it is a small change, might be significant for that reason. Clearly it is early days yet, particularly in reflection to the points about weather above.  For coarse grains (feed grains, mostly combined maize), stocks will not have been so low since 2012/13.  Curiously, at this time in 2012, the feed wheat futures price was around £170 per tonne and then went on to comfortably pass £200 per tonne.  Clearly, there are other factors at play at the moment, but it’s worth watching: A predicted stock decline of 76 million tonnes, equivalent to a 29% decline in two years, in physical terms represents a decline as a proportion of use of almost a third.

UK and Europe

Throughout Europe, crops are apparently growing well.  Areas such as the Black Sea region that have experienced dry weather have ample soil moisture (like most UK farms).  As per the UK, the warm weather since mid-May has accelerated growth and both spring and winter crops are in a good state.  Some feel the tillers on spring crops might be fewer this year than usual because of accelerated growth rates.  In the end, it is felt that despite such wet conditions the UK spring drilling, whilst late, largely got done, and few hectares will remain unintentionally fallow.  The market price for spring malting barley is factoring in a lower than usual yield with a higher price despite the crop looking remarkably good.  Old crop markets are now all-but closed.

UK Wheat prices are high compared with other parts of Europe, which is now pulling-in imports from elsewhere.  This suggests UK prices are unlikely to rise short of currency fluctuations or if European values also lift.  The regional imports are being fuelled further by local logistical issues with fewer lorries to move grain this season, partly because of demand from other bulk sectors such as aggregate.  Regional price spreads are larger than usual.

Oilseeds

Oilseed markets are mixed, with reports of smaller crops in local markets (e.g. Germany), and further afield (Argentina and Uruguay).  Yet at the same time the USDA expects Brazil to find 73mt to export this coming year; partly from continued expansion of area helping support a record bean crop and also as its currency, the Real, has been very weak, supporting exports.  Crude oil at $80 per barrel is at a 3½-year high which will support vegetable oil prices.  In the long term, it is notable that China has been encouraging more soybean production because of its trade dispute with the US.  It is important as the US and Brazil are expected to supply 100 million tonnes of soybean to China this coming year.  China expects its (meagre) soybean area to be up by 8.5% this year.