Category: Arable

DEFRA has released its provisional arable crop area results from the 2017 June Survey of Agriculture and Horticulture.  These only relate to England, but tend to confirm the trends seen in the AHDB survey results for Great Britain reported on last month; an increase in the spring barley and oat area, but a decline in wheat, winter barley and OSR. There are some interesting differences however.

The results for the wheat area are pretty similar, DEFRA is suggesting the English area has declined by 2.5%. The AHDB figures showed a 3% fall for the whole GB.  The DEFRA figures show the winter barley area has declined by 4% to 361,000 Ha, whilst the AHDB figure was just a 1% drop.  DEFRA is also suggesting another big increase in the spring barley area, up by 15% to 478,000 Ha, AHDB ‘only’ saw a 9% rise.  This is mirrored by the results for oats, according to DEFRA the oat area has increased by 17% to 120,000 Ha, whilst the AHDB survey suggested 7%.

The drop in the oilseed rape area in England was not quite as big according to the latest figures from DEFRA – winter OSR plantings declined by 3.8% (AHDB survey suggested 5% for GB).  Similar to the AHDB results, the East Midlands and Eastern areas saw the biggest drop in OSR plantings: between them they account for almost 48% of the total area, meaning declines in these areas of England are significant.  The Eastern region saw plantings drop by 10.9% in 2017 (14,000 Ha for the region).  Spring OSR plantings only make up 2% of the total oilseed rape area at 8,000 Ha.

The area of uncropped arable land in England has fallen this year by 11% after two years of large increases (21% and 23%).  The figures are the first results and are subject to amendments. The final results will be published on 14^th September 2017.  The full figures can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/638223/structure-jun2017provcrops-eng-17aug17.pdf

Combines are now rolling in many parts of the country, although progress has been restricted by bands of rain in the last week or so.  Early reports suggest that the winter barley harvest has yielded close to average, or even a little above normal on some farms.  Crops on heavier land have, unsurprisingly, dealt with the spring dry spell better than others.  Data is at present limited, but it seems that quality of the early-harvested crops is reasonable too.

For oilseed rape the story is similar.  Yields seem better than the disappointing levels generally seen last year.  They are at around the five-year average or higher.  It is reported that there is a large range in results.  Whilst some crops have yielded very strongly, those that did not establish well, or were subject to strong pest and disease pressure, are coming in at very low levels.   A few wheat crops have been cut in the south, but it is too early to state what the overall crop results are likely to be.  There is some confidence of decent yields though.

In terms of prices, the continued weakness of the Pound, currently at 89p to the Euro, has helped buoy most crop prices through July.  At a global level there is concern about the North America crop, especially spring wheat, due to drought conditions.  Plantings were lower anyway and, with yields being hit, it seems likely the US will produce its lowest spring wheat crop in 15 years.  The same effect is seen in Canada.  These crops tend top be the high-quality milling wheats.  This should be good news for the UK where, thanks to shifts in the varieties being planted, we will have a surplus of milling wheat from this harvest.  However, because of quality differences, our grain cannot always replace the N. American grades.  Also, it appears the French will be producing large quantities of milling wheat this year as quality and quantity bounce-back from the rain-affected 2016 year.  All this means that milling premiums are likely to be under some pressure after this harvest.  At current UK prices, even with the weak Pound, domestic wheat is too expensive for export.

Feed barley prices are at historically high discounts to wheat, but the gap could close in the next few months.  The Spanish harvest has been hit by drought and this may open up opportunities for barley exports.  Malting prices have weakened a little as it appears that continental crops should provide decent yields and quality this season.  The oilseed market has been volatile with little clear direction as traders try to digest various weather and crop reports from North and South America.

The saga of the reauthorisation of glyphosate continues.  EU Member States have held technical discussions on the plans to approve the active substance of a further 10 years (rather than the normal 15 years).   Further discussions are set for the autumn ahead of a vote before the end of the year when the current licence expires.  The EU Commission has clearly stated that it will be down to Member States to make the final decision.  In the past, there has been a tendency for countries to abstain from tricky political votes whereby the decision reverts to the Commission to make.  It has stated that it will not re-authorise glyphosate unless there is the support of a qualified majority of Member States. 

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.