Category: Arable

Similar to last year, the 2017 AHDB Planting and Variety Survey shows an increase in the spring barley and oat area, but a decline in wheat, winter barley and OSR.  The wheat area is estimated to be 3% lower than in 2016; the fourth consecutive annual drop.  At the time of planting decisions, wheat prices were at an historical low point, which would have influenced growers choices.  In addition, the challenges of blackgrass continue to see producers look to alternative cropping.  Nabim Group 1 and Group 2 varieties continue their resurgence and are estimated to account for 40% of the area this year.  This is up from the 31% last year and is the highest since the variety survey started in 2006 (43%).

HGCA PLANTING SURVEY: 2017 – Source: DEFRA / AHDB
‘000 Ha – GB	2013 Final	2014 Final	2015 Final	2016 Final	2017 Estimate	% Change   16 – 17
Wheat	1,607	1,927	1,824	1,815	1,761	-3%
Winter Barley	305	422	435	432	428	-1%
Spring Barley	883	634	644	668	725	+9%
Oats	175	135	129	139	151‚ ²	+7%
Cereals  Total ¹	2,968	3,119	3,032	3,053	3,024 ²‚	-1%
Oilseed Rape‚	715	674	652	579	553‚ ²	-5%
Total	3,683	3,793	3,683	3,632	3,577 ²	-1.5%
¹ excludes ‘other cereals’ such as rye, triticale etc.   ‚ ² Oats & OSR figures for Wales not available yet (5,000 Ha for both in 2016)

For the fifth year running there has been a decline in the OSR area.   The Welsh oilseed rape figures are not available, but the English and Scottish combined area was down by 5%, recording the lowest area since 2004.  The East of England saw the largest decline (-24%) likely to be due to the increased risk of growing the crop due to the loss of agro chemicals (neonicotinoids) and also the very dry conditions experienced in the East at drilling time.

As can be seen from the table above, spring barley is the crop capitalising on the declines in wheat and OSR.  It is estimated to have increased by 9% compared to year-earlier levels.  This is the third consecutive year the crop has seen an increase as growers continue to turn to spring cropping to combat weed problems, spread workloads and address soil and fertility issues.

New research has concluded that neonicotinoids are harmful to bees.  The latest study which was carried out by researchers from the Centre of Ecology and Hydrology (CEH) was funded by Bayer and Syngenta.  Whilst the agrochemicals companies don’t disagree with the findings, they are critical of the conclusions which CEH has drawn.  The study was significant because it is the first large, field scale experiment to look at the effect of neonicotinoid seed treatments on honey and wild bees.

The study took place across the UK, Germany and Hungary, monitoring three bee species.  Although the study found neonicotinoids have an overall negative effect on bees, the results are not clear-cut.  It found that exposure to neonicotinoid treated OSR reduced the ability of the honey bees to survive the winter in both the UK and Hungary, although no harmful effects were found in Germany.  The reason for this was unclear and could be in part due to the general healthier state of the hives in Germany and the fact that they also had access to a more diverse range of wildflowers to feed on.

Both Bayer and Syngenta are disputing the authors’ conclusions and do not agree that adverse effects of the seed treatment can be definitively determined from the study.  Bayer has stated that, in the vast majority of cases, they was little or no difference between the colonies which were feeding on treated or untreated crops and found it odd that the authors had highlighted the ‘very few statistically significant results in the data’.  The authors however are standing by their findings, which come at a critical time for the industry.  The EU is reviewing the 2013 ban and is considering an extension to the ban to restrict the use of neonicotinoids on all outdoor crops i.e sugarbeet, potatoes, cereals, fruit and vegetables.

Crude Oil price has fallen in June (based on rising production in Libya and Nigeria) from over $50 to about $42 per barrel.  It had picked up to $44 by the end of the month.  Changes in this market affect the entire commodity matrix and is likely to have had an impact on grain prices.  This is not only because the two markets are linked through mutual investing by commodity fund managers, but more importantly because the link between grains and oil is now bound by the biofuel industry that uses more grains when the oil/grain price spread is great.

Harvest is about to start in East Anglia on some farms.  Following some scorching sunshine last week, pushing crops forward, the start of harvest might be a few days earlier than in an average year.  This is comforting buyers as the spread between old and new crop has come down to only a couple of Pounds.  Harvesting in southern Europe and Ukraine has already started.

We have been commenting over recent months on how this coming year is likely to be another net wheat importing year for the UK, making the 3^rd in 5 years.  Before then, the UK had not been an importer for 20 years.  Official forecasts now agree.  Those who attended the Andersons Seminars last year will know this is a developing trend we have been forecasting for a couple of years.  Domestic wheat production has not been changing but the level of wheat consumption has been steadily rising.  All things being equal, this should be good news for UK wheat producers.  It changes the pricing basis from an ‘export parity’ to ‘import parity’ basis and should be worth a few extra Pounds per tonne.  There are regional variations on this though, depending on whether the grower is in a wheat deficit or surplus region.   

Fund managers and speculators have been changing their net position from short to long this month too (largely on the back of weather forecasts) which has created lots of price volatility with little market direction.  US spring wheat condition ratings have been falling but long range weather forecasts, in the US Midwest, project good growing conditions for maize.  Weather concerns in France have lowered their wheat yield projections.  The Paris Basin had the same heatwave as us and so the overall crop size could be trimmed; condition ratings have fallen and yield could be lower.

Globally, USDA predictions leave wheat stocks 3mt higher than last month’s prediction.  If anybody tells you there is a lot of wheat stocks around the world, please point out that half of that is in China and that in the rest of the world stocks are now falling.  Indeed, the rise of Chinese wheat stocks of 17 million tonnes outstrips the decline of 11 million in the rest of the world suggesting another 6 million tonne rise.  However, China does not tend to trade much and the Chinese surplus might not affect the rest of the World until the Chinese grain hoarding policy changes and stocks are sold internationally, as has happened in the past.

Barley harvest has started in parts of the Mediterranean. The EU Commission forecast suggests that whilst winter barley yield will be equal to the 5-year average, but higher than last, the EU’s spring barley crop is expected to be considerably lower, 6% down on the average and 9% down on last year.

Improved growing conditions for the US soybean crop have been reported by forecasters.  Rain in the Midwest has fallen that is good for their growing crop.  Global vegetable oil prices have fallen to a 15-month low and this has had an effect on UK oilseed values.

AHDB Potatoes has released its first estimates of total potato plantings for 2017.  This shows the GB area has increased by 4% compared to year-earlier levels to reach 121,000 Ha.  This is similar to the areas planted in 2012 and 2013 when the average price for the season was £154 and £127 per tonne respectively.  But the area is only part of the story, production figures will depend on yields and there is still plenty of growing time yet.  According to the AHDB, a five year average yield of 44.7 tonnes per hectare would result in an increase in production of 4% compared to 2016.  But if the very low yielding year of 2012 is taken out, the average rises to 46.7 tonnes per hectare and at this yield production would increase by 8% compared to last year’s levels. An increase somewhere between 4 and 8% looks most likely unless we have a serious weather event and yields are hit badly.  Conversely another high yielding year like 2015 would see production 13% up on 2016.

The AHDB area increases are similar to those found on the Continent.  The North-west European Potato Growers (NEPG) which includes Belgium, the Netherlands, Germany, France and the UK estimate a combined increase of 3.6%.  AHDB will update its estimate in August to include varieties and regional figures.  However, some major growing regions in Belgium and France are reportedly short of water which could see average yields decline on the continent.  This would be better news for UK producers as imports have become an increasingly important factor in the domestic market over the last few years. 

Andersons have updated their Loam Farm arable model for this year’s Cereals Event.  The table below summarises the results from the 2015 and 2016 harvests, plus a budget for the upcoming 2017 crop and a forecast for 2018.  The results show the profitability prospects for combinable cropping are far better than they were twelve months ago.  But this is almost entirely due to the weakening of the Pound following the Brexit vote last June.  This may just turn out to be a short-term boost and farmers would be prudent to use the next two harvests to ensure their businesses are ready for the post-Brexit world.

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.

LOAM FARM MODEL – Source: The Andersons Centre
£ per Hectare	Harvest 2015 (Result)	Harvest 2016 (Result)	Harvest 2017  (Budget)	Harvest 2018 (Forecast)
Output	1,048	1,061	1,167	1,178
Variable Costs	431	421	395	403
Gross Margin	617	640	772	775
Overheads	404	394	414	414
Rent and Finance	243	242	243	243
Drawings	75	77	77	77
Margin from Production	(105)	(73)	38	41
BPS	179	213	213	208
Business Surplus	74	140	251	249

The 2015 harvest was marked by record yields which offset the poor prices to a small extent.  Evens so, the overall result for 2015 was a loss before the Basic Payment.

The 2016 harvest produced lower physical yields than the previous year.  However, average prices received were higher.  This was despite some grain being sold forward before the Brexit-induced price lift.  Costs fell for the year due to lower fertiliser and fuel prices.  But it still took the Basic Payment, which was significantly improved due to weaker Sterling, to bring the business back into profit.

Yields are assumed to be more ‘normal’ for harvest 2017.  There may be some downwards adjustment once the harvest results are in, especially with the spring crops.  Price prospects look reasonable for the coming harvest so output is estimated to rise once more.  It then remains at similar levels for the 2018 budget as there seems little on the immediate horizon that looks set to radically shift UK grain values.

There are some more variable cost savings for harvest 2017 largely due to cheaper fertiliser. Overheads have remained relatively static during the period apart from 2016 when cheaper fuel reduced costs.   The BPS is assumed to remain at (improved) 2016 levels for 2017 due to the weakness of Sterling.  It drops slightly for 2018 as there is a possibility of a higher % of ‘Pillar Transfer’ to the Rural Development budget.

The table shows Loam Farm is budgeted to return to making a profit from production over the next two years.  The process of Brexit is full of uncertainty, but tougher times could well lie ahead.  Farm businesses need to ‘fix the roof whilst the sun is shining’.

Loam Farm illustrates trends in arable returns but every farm is different and there is a vast range in business performance; driven largely by the quality of management.  The better returns generally seen in the sector may be masking underlying issues on many arable farms.  Often these revolve around a high cost base and disappointing yields.

International commodity trader RCMA is building a new oilseed rape crushing plant at Camgrain’s Stratford-upon-Avon site.  According RCMA the new £25m facility will only crush UK grown rapeseed and, for the first year, only that sourced from Frontier Agriculture, Camgrain’s marketing partner.  This should reduce delivery costs for co-op members with grain stored at the plant.  The facility is expected to be up and running this autumn and will crush about 100,000t of seed a year.  It is claimed to be the first new crushing facility to be opened in the UK for around 30 years.  It is relatively small, with the UK’s largest plant at Erith in Kent having a capacity of over 1m tonnes of seed per year.  The Erith plant is owned by ADM which, together with Cargill (plants at Liverpool and Hull), currently have a virtual duopoly on rape crushing in the UK with a market share in excess of 90%.  The new Stratford facility should add more competition into the market.

Probably the most important event in May for UK arable farmers was the arrival of some much-needed rain.  The majority of winter-sown crops received enough in the second half of the month to perk them up and, barring another prolonged dry spell, there may not be too much effect on yield.  Spring crops have been more badly affected.  The spring cropping area is relatively high this year, especially spring barley.  Some of these crops are looking quite patchy.  Even those with better establishment are playing catch-up and there may be a noticeable effect on yields.  Whilst there are many good reasons for the recent shift back to more spring cropping, this year has perhaps been a reminder that it is a fundamentally riskier growing proposition than autumn plantings. 

In terms of markets, currency has given domestic prices a bit of a lift.  The narrowing of opinion polls ahead of the General Election has created uncertainty and caused the Pound to weaken.  The basics of the global grain market remain unchanged however.  Stock levels are at historic highs, and most forecasts indicate there will remain plentiful supplies following the 2017 harvest.  Indeed, as the northern hemisphere harvest draws nearer, the chances of a catastrophe in one of the major growing regions recedes.  UK ex-farm feed wheat prices for November 2017 are stuck in the range £130-£140 per tonne (depending on region) and may be there for a while.  These kinds of prices should allow better producers to make a profit from their cereals production – as long as costs have been kept under control. 

The EU is set to vote on the criteria for identifying endocrine disruptors.  Although this sounds highly technical,and not a little dull, it could have profound effects on Europe’s and the UK’s farming industry.  The definition of endocrine disruptors (EDs) has been a long-running saga.  The EU Plant Protection Products (PPP) Regulation (1107/2009) introduced a move from a risk-based to a hazard-based assessment criteria for the approvals of active ingredients in PPPs.  Effectively, this means the inherent properties of a chemical are looked at, rather than how it might be used in practical situations.  In general, the new rules make it less likely that an active ingredient will be approved because the test is whether a substance is harmful (for example caffeine) rather than how it actually interacts with humans or the environment (i.e. diluted in your morning latte).   At the same time as Regulation 1107 came in, endocrine disrupting active ingredients (substances that may interfere with hormones) were classified as hazardous.  But the rules defining what is an ED have not been agreed.

The rules on what constitutes an EDs look like they may now finally be set.  This would be based on World Health Organisations definitions.  Until all active substances have been assessed it is not clear how many may be lost as a result of this change.  Various studies have suggested upwards of 30 might be affected.  There is a split among Member States (and lobby groups) over the proposals.  Some want tougher criteria, whilst others think the scientific basis for the restrictions are unproven.  As we have said elsewhere, even with Brexit, these European rules matter because the UK is likely to take them on wholesale upon leaving the EU under the Great Repeal Act.