Category: Arable

April Arable Roundup

Spring Drillings

Much catch-up has been played in the last week and now most spring crops have been drilled (with the exception of Scotland).  The next task is to spot the dry, non-windy days to follow the agronomists’ instructions.  There will probably be a small increase in fallowed land as a response to the very wet, late arrival of spring, but any more than 30,000 hectares of idle land above last year’s area would surprise us.  Indeed, that would leave fallow land higher than any year since 2007 when set-aside was required.  More likely most spring drilling plans will still be followed, albeit late, potentially into sub-optimal conditions, and yielding less than initially hoped.  The output from these crops may yet be reasonable though, as long as they get the agronomic attention they deserve and favourable weather from here on.  But whilst it is early days yet, it is probably best not plan for record yields this season.  Remember also, autumn crops that emerged from dormancy into cold puddles, their roots sat in cold, saturated soils for many weeks might also demonstrate their discomfort with poorer yields.

In November last year, the expected area to be drilled this spring, particularly with barley but also wheat was high.  In the last three years, the total spring combinable crop area in the UK has covered over a million hectares.  The AHDB’s Early-Bird Survey of planted area and planting intentions suggested 778,000 hectares of spring barley; potentially the highest area in 17 years and second highest in 30 years.  This is a big-ask in a tricky season and the drilling window is ending for most crops in England, and despite more summer daylight, Scotland will not be far behind.

In amongst the kerfuffle of trying to drill and apply plant protection, it is now also time to plan the forthcoming grain marketing year.  The realistic ambition should be to sell at a price that is a good average (and covers costs of production) rather than hit all the market peaks.  How much will be marketed ahead of harvest, at harvest and afterwards?  With a potentially lower overall crop-size, it might be prudent to sell slightly less ahead of harvest.

New Crop Markets

Over the last month, UK new crop wheat markets lifted by £4 per tonne, reaching 6-month highs.  This is largely to do with new global projections for wheat production being slightly lower than consumption and therefore potentially a small decline in global stocks.  Clearly this is all based on average yields and harvested area calculations, but if true, this would be the first decline in stocks for five seasons.

The Pound, which strengthened in the light of a glimmer of Brexit clarity, rose to exceed €1.15/£1, for the first time in almost a year.  A stronger Pound lowers grain and other domestic prices.  But the market fundaments outweighed the currency movements.

Furthermore, the Vivergo bioethanol plant at Hull that has been closed for four months now has reopened in the light of rising oil prices.  This could help mop up the year-end surplus ahead of harvest.  This time last year, UK Brent crude oil was valued at $55 per barrel, and it fell to $45 last summer.  Now, because of the recent airstrikes and other political shenanigans, Brent has risen to over $70 per barrel; surely good for the bioethanol industry.

Several boat loads of oilseed rape will be entering the UK in the coming month, with the southern Hemisphere harvest now available and some EU surpluses having been purchased for processing here too. That is likely to flatten the market, possibly until harvest now.  The bean market is following a similar set of fundamentals, with pressure from Australian exports to Egypt making our exports less competitive.

 

Record Beet Yields

The 2017 crop harvest campaign ended just before Easter, with a record-breaking yield produced.  Final average yields have been reported by British Sugar to be 83.4 tonnes per Ha.  This is 4.5% higher than the previous record of 79.8 tonnes per Ha seen for the 2014 crop.  Some 8.9m tonnes of beet were grown on just over 105,000 Ha in 2017.  This produced 1.38m tonnes of sugar.  Good growing conditions, especially the wet summer and autumn which allowed the crop to continue bulking-up, helped to achieve the record.  As with many spring crops, beet planting for 2018 has been delayed by wet field conditions.  With a long growing season until harvest, this does not necessarily mean that yields will be too adversely affected, but this year’s crop will do well to beat the performance of 2017. 

Vivergo Restarts

The Vivergo bioethanol plant on Humberside has restarted production after a pause of four months.  The shutdown was prompted by a low ethanol price and uncertainty over UK Government support for biofuels.   The passing of a new Renewable Transport Fuel Obligation (RTFO) through Parliament in March has given the business the confidence to recommence production of fuel (and animal feed) from UK wheat.

Sugar Levy Refund

Those who grew sugar beet during 1999 and 2000 are due to receive a payment from the EU.  This follows a ruling from the European Court of Justice that the EU overcharged growers when collecting a levy (which was discontinued from 2006).  The total fund for the UK is estimated at around £6m which will be split roughly equally between the processor, British Sugar, and beet farmers.  It is forecast that the amount going to farmers will be in the region of 43p per tonne of A and B Contract (27p in 1999, 16p in 2000).  British Sugar is sending a form to all growers it believes are eligible.  Those that do not receive a form should contact the processor.  Payment is aimed to be made around the end of September 2018, and will be made by British Sugar.

March Arable Update

At this time of year, global markets tend to get somewhat fixated on the weather, in the absence of more concrete information about supply and demand.  Quite minor events can have a disproportionate effect on prices.  March has seen examples of this.

Grains prices rose in the early part of the month on increasing fears of a drought across the corn belt of the US where precipitation has been low for some months.  Then a band of rain swept across the Great Plains and prices dropped back.  However, it was then found that the rainfall had not been as widespread as had been hoped, and markets bounced back up again.  A similar effect has been seen in Argentina where the soya crop is suffering from a lack of moisture – causing oilseeds prices to firm.  Some rainfall during the month caused markets to have a brief wobble but, again, the subsequent conclusion was there had not been enough rain to materially affect the growing crop.

Despites the ups-and-downs, global markets have firmed overall during March.  As reported last month, current forecasts for the 2018 harvest show a tightening of supply and demand.  The table below shows the latest International Grain Council (IGC) figures.  The projected fall in wheat stocks is not large, but the reduction in maize could serve to tighten all grain markets.

WORLD GRAIN SUPPLY AND DEMAND – Source: IGC (end March 2018)
Marketing year – 2014/15 2015/16 2016/17 2017/18‚ 2018/19‚
UK Harvest Year- 2014 2015 2016 2017 2018
m tonnes WHEAT
Production 730 737 754 758 741
Usage 714 720 738 742 744
End Stocks 207 224 240 256 253
Stocks/Use Ratio 29.0% 31.1% 32.5% 34.5% 34.0%
Stocks in majorƒ exporters* 66 75 78 66
m tonnes MAIZE
Production 1,027 984 1,088 1,045 1,052
Usage 998 974 1,046 1,074 1,094
End Stocks 284 295 337 308 265
Stocks/Use Ratio 28.5% 30.3% 32.2% 28.7% 24.2%
Stocks in major„ exporters~ 59 81 73 58
m tonnes SOYABEANS
Production 320 315 350 341 354
Usage 312 317 335 347 358
End Stocks 37 33 47 42 39
Stocks in major… exporters# 16 23 19 16
2017/18 is Forecast, 2018/19 is a Projection.   *ƒ Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US   „ ~ Argentina, Brazil, Ukraine, US   …# Argentina, Brazil, US

Closer to home, the prospects for another large Black Sea crop look favourable with good planting conditions reported in Russia and Ukraine.  As traditional competitors to the EU for export markets, this could pressure European prices post-harvest if the crop potential is fulfilled.

UK prices have firmed alongside the general global market, but some specific issues also apply.  The Pound has strengthened this month as the Brexit negotiations appeared to make some progress (see General/Policy section).  UK wheat was already uncompetitive on export markets with very low levels of trade being seen.  The shift in currency has made it even more so.  Indeed, current relative prices may even encourage imports of grain into the UK.  Weighing against this is strong domestic demand, including an upturn in bioethanol production.

On the farm, many drills are poised for action, simply waiting for the soil to dry out to get spring crops in the ground.  Although planting is now a two or three weeks behind schedule in many places, it is unlikely that the late spring has shifted planting intentions or potential crop yields enough yet to impact on markets for harvest 2018.

Potato Planting Delays

With trade for the 2017 potato crop remaining lacklustre, weather conditions have been significantly hampering 2018 plantings.  According to the Royal Jersey Company it is about three weeks behind schedule.  A combination of frozen ground earlier in the month and rainfall on the slopes has meant as at 19th March just 56% of the export crop had been planted, the furthest behind it has been for 10 years.  In addition, where planting has taken place, frost damage was widespread in the earliest crops that had emerged, although there are signs of recovery.  Indoor crops have started to be lifted, but again sub-zero temperatures have negatively impacted the growth of these.

The conditions are not unique to Jersey, anecdotal reports reveal the situation is similar in Cornwall, with planting progress significantly behind ‘normal’ years.  Even where planting is possible, the cold soil temperature is likely to hamper growth.  With the delays, we could see more earlies coming to market at the same time, which could put prices under pressure.  But the likely delays in the new crop, could help old season prices, particularly salad potatoes.  Reports suggest these have been storing well.

 

Grain Commentary

In the midst of the Beast from the East, the chilling weather has already been cited as probably damaging crops (particularly winter oilseed rape) in Germany, Poland and the Czech Republic.  These countries have very little snow cover on their crops which can act as a protective blanket against very cold weather.  The USDA has also made its first prediction of US wheat area and crop size suggesting a small increase in US wheat production in 2018.  Strategie Grains has done the same for the EU (no change) and Kazakhstan (2% decline).  The Canadians, Ukrainians and Russians have done similar for their own crops (down  3% in Canada, down 4% in Ukraine, and down 9% in Russia).  The International Grains Council (IGC) has made its first global predictions.  Overall, the wheat area is thought to be declining slightly, maize increasing (but by less than the rise in consumption) and barley increasing marginally on the back of current positive prices.  Soybean production is thought likely to increase globally, but stocks fall as consumption continues to rise.

The area of US wheat is forecast to rise because of an increase in spring wheat area.  The overall winter wheat area is seen declining to a 109-year low of 13.2 million hectares with springs making up the difference.  A notable observation is that the overall yield is expected to increase, despite a rise in the proportion of spring wheat, and a write-off expectation of 17% of the planted wheat crop.

Oilseeds tend to take second fiddle in these announcements but are still important.  The main one, soybeans, accounts for 60% of oilseed output.  Whilst a small decline in production is expected in the US, a large carry-over in stocks means the availability of beans from the US is likely to be high.  On a global scale, the IGC suggested the global harvest would increase but with consumption rising, stocks would fall.  This is interesting as the Chinese have bought far less soybean from the US this year and much more from Brazil – which is now by far the largest exporter of soybeans to China.

The projection from the IGC suggests a fall in output of wheat and a continued rise in consumption, leading to the first decline in global stocks of wheat for six years.  The change is expected to be small (short of unforeseen weather extremes).  Global trade is also predicted to rise to a record level.  The Council also assumed an increase in maize consumption, leading to a second consecutive year of maize stock declines.  Whilst the US will be producing less, South America will step up and make up the difference with a small rise in production globally.  The IGC also expects a high barley crop in reflection of the current high prices.

Of course, much of these crops that have been forecast have not yet even been drilled.  From our experience here in the UK, planting intentions are rather different to final planted areas.  Furthermore, using average or trend yields is all a ‘spreadsheet-analyst’ can practically use at the moment which makes the predictions far from accurate.  From now on though, the attention on new crop will far outweigh old crop and so the fundamentals affecting both crops will start shifting.  By next month, the amount of 2017 harvest left un-committed and un-priced in farm barns will be rather small.

Domestic barley prices have been buoyant this winter and are currently as high against wheat as at any time, with feed barley actually priced higher than feed wheat in some UK locations.  This is unusual as it has less nutritional value than wheat.  Wheat milling premiums have come down over the last month.  For a period after harvest, milling premiums remained steadfastly high, but have since fallen as markets realised that the overall tonnage means ample is available for millers to choose from.  The UK pulse market will be slowing down from its current snail’s pace over the coming month as new supplies will be offered to Egypt from the Australian harvest.  Similar might happen with oilseed rape too.

Cefetra Goes Shopping

The specialist arable crops business, Premium Crops, has been sold to the grain trader Cefetra, subject to due diligence.  Premium Crops specialises in alternative combinable crops such as linseed, HEAR oilseed rape, millet, naked oats, and red wheat.  It had been part of the US-based Technology Crops International since 2014.  Cefetra states that the acquisition of Premium Crops will enable it to diversify its business and offer farmers and customers a wider range of products and services.  Cefetra has also taken over the grain trading business of Dalmark Grain.  A relatively small regional player, Dalmark states that it has found trading conditions difficult and is going to concentrate on its seeds business.  Cefetra is growing its operations in the UK, following its purchase of the Wessex Grain cooperative in 2015

Yorkshire Sugar Factory In Doubt

Plans to build a new sugar beet processing plant in Yorkshire have stalled.  As reported in our article last May, the Dubai based company Al Khaleej Sugar planned to construct a plant larger than British Sugar’s Wissington facility on a site near the A1 between Harrogate and York.  Talks between Al Khaleej and North Yorkshire Council have now broken down over terms for the site.  It is reported that the company is now looking at other sites outside of the UK.

January Combinable Crop Market Update

Last July, nearby and forward prices of UK wheat on the futures market converged to within £1 per tonne of each other at a spike of £157 per tonne; £15 per tonne higher than the market had been only 3 months earlier.  It looked like the start of a bull run.  Since then, the market has slipped back nearly £20 per tonne for old crop and about £14 for new crop.  Prices for harvest 2019 are somewhere between the two.  There is lots of talk of currency causing movements in the value of grains and other commodities, but, back in July, the pound was worth €1.13 (€1 = 88p) and today the exchange rate is the same.  In fact the Pound has been relatively steady at these levels of between 88p and 90p since September, and in a slightly larger range since last June.  Plus, the independent movement in futures positions clearly cannot be a function of currency as it would affect them both equally, but is therefore a series of grain fundamentals moving separately for each crop.  The movements, whilst adding up, have been gradual but consistent. Without much grain crop production news at this time of year and ample supplies to keep the consumers out of the news, price movements are often gentle and less noticeable. But it is still a £20/tonne fall since last summer.

A gentle but persistent underlying bearishness in the market is borne out by the UK futures.  This can possibly be explained by the chart below.  It shows how the USDA’s monthly expectation (forecast and then estimate) of the 2017 global wheat harvest has changed since the first estimate in May 2017.  Its estimate of global production has risen by 20 million tonnes to 757 million tonnes. Whilst this doesn’t sound particularly much, it is approaching a 3% increase in global output expectation; considerably more than the UK produces in total.  The USDA’s consumption figures have increased but by much less (6 million tonnes), meaning considerably more crop is now available than was initially thought.

USDA Monthly Global Wheat Production and Consumption Estimates – Harvest 2017

Whilst anything can happen, it does appear that downside currently exceeds upside in the wheat market. We are aware that any information that is reported on (including USDA statistics) is built into the market immediately meaning forecasting further moves is not possible from public information, but a heavy surplus is likely to slow any future bull runs.  Indeed, wheat has fallen more than barley this month, and the difference in some regions is now small.  We might see some feed consumers switching from barley into wheat.

Global soybean trade can be simplified as either a) from USA or Brazil to China or b) any other trade. Between them, the USA and Brazil account for 83% of global exports, and China alone accounts for 65% of imports.  Whilst exports in both countries have been rising, Brazil now outstrips the USA as the major soybean supplier for the world.  Indeed, China has been favouring Brazilian beans this year.  This is possibly a price issue, with the Brazilian Real weakening making them more competitive, but also as their protein is consistently higher.  China buys soybean, primarily for the meal, not the oil. We would generally expect a weakening of US prices to have a greater impact on EU oilseed (and pulse) values than Brazilian, being more closely connected to the EU marketplace, however, the overall balance between supply and demand is the ultimate arbiter of the base price for commodities.

Whether higher protein adds value in beans is a moot point: A recent seminar on pulses held in Peterborough, was told by a prominent pulse buyer that whilst higher proteins is preferable to lower proteins in beans when it comes to securing export outlets, protein levels do not attract higher payments and growers would not receive more.  In other words, the key in the UK when growing pulses is to go for yield, and not protein.  At least not until the buyer recognises it as preferable by way of price differentiation.