Category: Arable

The grain harvest is still not completed in Scotland and some are calling 2017 the worst harvest for 20 years.  Farmers have been harvesting very high moisture grains and considering anything that can be cut as a bonus, even if the dryer is flat out.  Of course whilst this is a costly problem for the farms affected, the proportion of unharvested grain nationally is small.  Quality of grains is going to be pretty awful for those caught by the turn of the weather.  Nationally, the AHDB wheat quality survey reported a fall of bushel weights and Hagberg levels, but higher proteins, for high and medium quality wheats.

Yet the millers are, on the whole not overly concerned by the decline in wheat quality, to the point that milling wheat premiums have been falling.  In late September, full specification milling wheat premiums over feed were trading at about £20 per tonne, but have fallen now to about £13.50 this week.  Whilst this is a sharp reduction, it is still a far cry from the lows of £2 or £3 in March earlier this year.  The fact that the UK is now producing approximately 250% more NABIM Group 1 milling wheat than only four harvests ago means the millers choice is greater (notwithstanding imports and exports).

Throughout the UK, EU, wider Europe and globally, most grain buyers are comfortable that there is ample for everybody, even discounting the 50% of the global grain stocks that sit in China (away from the marketplace).  The only market participants that don’t appear to have grain on their books at the moment are the speculators, suggesting they are more bearish yet.  However, of course, that could change very quickly.  Against this background, global values have remained in the doldrums.

Spring malting barley premiums in East Anglia, have been heading the other way to wheat, with a £33 per tonne premium over feed barley, for those who have top-quality samples.  This is a high premium, and explains why the UK is dearer than the price bid by overseas consumers.  Despite a reasonable start to the barley export campaign this year, malting barley will not be shipped at these levels, suggesting downward pressure is more likely to come to bear on these figures sooner rather than later.

DEFRA has released its provisional estimates from the June 2017 Survey of Agriculture and Horticulture showing planted areas in the UK for the main crops, and also estimates for crop production in the UK.  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 21^st December.

UK JUNE CENSUS AND CROP PRODUCTION
AREA – ‘000 Ha	2014	2015	2016	2017	Change 16-17
WHEAT Yield (tonnes per Ha) Production (‘000 tonnes)	1,936 8.6 16,606	1,832 9.0 16,444	1,823 7.9 14,467	1,791 8.5 15,163	-1.7% +7.3% +5.4%
BARLEY       Winter Barley       Spring Barley Yield (tonnes per Ha) Production (‘000 tonnes)	1,080 429 651 6.4 6,911	1,101 442 659 6.7 7,370	1,122 439 683 5.9 6,655	1,177 424 754 6.3 7,360	+4.9% -3.6% +10.4% +5.4%% +10.6%
OATS Yield (tonnes per Ha) Production (‘000 tonnes)	137 6.0 820	131 6.1 799	141 5.8 816	161 5.8 933	14.1% +0.3% +14.4%
OTHER CEREALS	26	35	45	52	+46.3%
TOTAL CEREALS Production (‘000 tonnes)	3,179 24,468	3,100 24,734	3,132 21,967	3,181 23,552	+1.6% +7.2%
OILSEED RAPE       Winter Oilseed Rape       Spring Oilseed Rape Yield (tonnes per Ha) Production (‘000 tonnes)	675 661 14 3.6 2,460	652 645 7 3.9 2,542	579 570 9 3.1 1,775	563 554 9 3.9 2,183	-2.8% -2.7% -7.6% +26.5% +23.0%
LINSEED	15	15	27	26	-3.3%
SUGAR BEET	116	90	86	111	+29.5%
POTATOES	141	129	139	145	+4.5%
FIELD BEANS	107	170	177	192	+8.7%
COMBINING PEAS	32	44	51	40	-21.3%
MAIZE	183	187	194	195	+0.9%
FALLOW	160	214	262	241	-7.8%
Source: DEFRA    2017 data is provisional

Although the wheat area declined once again, much better yields means the overall production has increased by 5.4% on the year.  The barley area has risen again and with better weather for crop production this year, yields for barley have also increased.  A closer look at the split between spring and winter barley, as expected, reveals the area of winter barley has reduced again, whereas the spring crop area increased by 10.4%.  Producers continue to switch to spring crops to help with weed (blackgrass) control, spread workloads and the favourable economics of spring malting barley production over winter feed barley.

The oilseed rape area has fallen again.  But a much improved yield has seen production increase by 23% compared with year earlier levels, although still short of production seen in the recent past. The lack of pest and disease control options continue to be the main reason for the drop in area.  This trend is likely to continue for the current year, but the increase in oilseed price and consequent improvement in margins, is likely to limit the fall. 

The new sugar beet contracts offered has seen a significant increase in planted area for 2017 but it has still not recovered to its ‘traditional’ area of circa 120,000 Ha.   Improved potato prices last year has probably contributed to another increase in the planted area this year.  Although poor prices currently being achieved are likely to be reflected in next seasons plantings.

The effect of Greening continues to be seen in the crop area figures with beans seeing a further increase in area, although peas have seen a significant fall this year.  However the ban on PPPs on all EFA land for 2018 is likely to see the bean area reduced for 2018.  The full crop area and production figures can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651173/structure-jun2017prov-UK-12oct17.pdf  The first statistical indications of plantings for next year will come next month with the publication of the AHDB’s ‘Early Bird’ Survey.

DEFRA has released the results for its final estimates of crop areas for England from 1^st June Survey.  The area of wheat has fallen by 1.9% to just below 1.7 million hectares; this is the third year in a row in which the wheat area has decreased, (although it still accounts for 62% of the total cereal area).  In contrast, the barley area has increased for the third consecutive year, although this is due to a rise in spring barley plantings by 15.9% as the winter barley area fell by 3.9% compared to 2016 levels.  The OSR area has fallen for the fifth year in a row, this year by 3.6% to 523,000 hectares.  A more detailed analysis will be given next month when the full UK results are available.  The statistical release can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/644481/structure-june17-final-eng-14sep17.pdf

The export surplus in the EU has risen slightly over last year; quantity is not a problem.  However, with an ever-increasing Russian harvest estimate, the ‘local’ competition is high and pricing it to sell means sharp discounts to the internal wheat price.  Consequently, exports from the EU have had a very slow start this year.  It will eventually be exported or consumed internally, but to do either of those, prices will have to fall.  Russian feed wheat is $10 per tonne lower shipped into Egypt and that is why the Egyptians bought a considerable consignment from Russia this month.  Ports on the northern coast of the Black Sea, where much Russian grain is shipped from each year freeze over in cold winters, effectively locking their grain away until spring. This would give the EU a winter opportunity to play ‘catch-up’.

The UK grain harvest is nearing completion, with only small parcels left in the northern parts of Scotland. The quality of the wheat harvest was not great compared with recent years, but with twice as much Group 1 milling wheat grown compared with only 4 years ago, there will be ample domestic milling wheat available.  Nevertheless, the UK will import more wheat then it exports for the third consecutive year, making the UK a net importer for five out of the last seven years.  Previous to that, imports exceeded exports for only one year in the previous twenty.  The change is down to higher UK consumption, rather than significantly less wheat being grown.  The shift might add a small premium to domestic wheat prices, although we should never lose sight of the fact that the marginal tonne (imported or exported) has the greatest impact on the value of the crop.

The crops still remaining to be harvested in northern Scotland are largely barley being grown for malting.  However, as it stands in the field, being rained on, its quality is starting to fade and chances of it ending up in the feed bin rise. Normally at this time of year, the last few fields are being collected but reports suggest that in some areas, in excess of 20% remains unharvested.

Oilseed rape prices are under continued pressure this month, as Canadian and European oilseed rape crop estimates come in higher than expected.  However, unsuitable weather in South America is hampering the drilling of the forthcoming soybean crop.

Beans tend to be amongst the last combinable crops to be gathered.  The rain in recent weeks, especially further north, has increased the risks of damaged quality, staining and bruchid beetle. The Beetle was a problem even for early harvested beans this year, and so careful testing is critical before selling to higher-risk premium markets.  Many crops will be destined for feed rather than human consumption this year.  Without a premium price, the financial returns are unlikely to look good.

Harvest

Harvest has progressed well with good conditions for most of the time despite short rain breaks.  AHDB reports suggest the winter barley and winter oilseed rape crops are now all-but completed, with estimated national average yields of 7.1 tonnes per hectare and 3.5 tonnes per hectare respectively.  These are both marginally above the national 5-year averages.  For oilseed rape, the oil content is also historically high at 45%.  Spring barley, which at the end of last week (25^th) sat at 40% harvested, also shows good yields, but nitrogens are high and grain merchants are reporting slightly higher screenings for both winter and springs than hoped for.  We might expect lots of feed barley this year.

By 24^th August, the wheat harvest was 68% completed, which is ahead of usual (out of the last 5 years, only 2014 was further forward). However, considering the dry spells ahead of harvest it is remarkable how consistent harvest timings tend to be. Reports suggest winter wheat yield averaging about 8.2 tonnes per hectare (again slightly ahead of the 5-year average of 8.0 tonnes per hectare) with yields good in the south and not so good further north.  Recent rain has frustrated farmers with ripe crops in the field, and lodging risks rising. There are some reports of lodged oats, possibly as much as 15% in some regions.

Bean yields have been impressive, and, although the beans often look clean and hole-less, many have ripened with the Bruchid Beetle still inside the bean, and unable to eat its way out.  There are high levels of Bruchid Beetle this year suggesting lots of beans in the feed bin and less for human consumption and therefore export to higher value markets.  Protect those of highest quality.

Much of the autumn oilseed rape drilling has been done, with some already appearing through the soil in the East Midlands and presumably further south.  For those away from the Flea Beetle regions, this year’s high yield and current strong prices could encourage a higher planted area than last year.

Other Market Factors

Grain exports from the EU are very slow this year, with global grain prices continuing to bounce along contract lows.  With record crops being harvested in Russia export competition is strong from the Black Sea region.  Conditions are about ideal in the US, for maize growing and wheat harvesting, again meaning there is minimal yield loss, further depressing prices.  The International Grains Council has thus increased their wheat production forecast by 10 million tonnes from last month.  As prices have fallen, consumption is considered likely to rise (albeit less than the rise of production) and the amount held by the major exporters is also seen rising 4 million tonnes.  A reminder as well that, whilst headline stocks suggest global wheat is at a very high level, over half of this is now held by China, a country that holds no reputation for trading large quantities.  Indeed, buying or selling grains is something it tries hard not to do.

The chart below shows how grain prices around the world (in their own currencies) have slipped steadily since the start of the harvest period, leaving the UK grain (wheat) price in a relatively strong (if precarious) position.  The Pound has taken another step down in strength this week (see article above) adding value to grain and other commodities.

The EU has plentiful supply of barley, so it appears.  Much is of high enough quality for malting so demand for UK tonnages might be lower than usual. This might compound the amount that goes for feed in the UK.