Category: Arable

The highly-anticipated opinion from the EU’s Chemicals Agency (ECHA) on the safety of glyphosate is expected to be made on 15^th March.  This is ahead of the expected schedule; it was anticpated in the summer.  The scientific opinion is expected to be announced at the Risk Assessment Committee.  The agency’s opinion comes after the EU Commission extended the licence, for the most widely used herbicide, by 18 months after Member States failed to reach a qualified majority position on its re-approval.  The opinion will be use in the Commission’s ‘classification’ of the substance.  The EU’s executive will then take the agreed classification into account when deciding whether to renew the approval of the active substance.

The price of feed wheat is more or less the same as it was at the start of February for both old and new crops. The market is relatively quiet and low volumes have traded. Globally, values have sunk a bit, leaving domestic prices at a premium to European equivalents. Indeed, whilst exports have been slow, we are in some areas at a price where importing from the Continent is cheaper. This will cap the upside of UK values so suggests this is a selling opportunity.

Globally, the International Grains Council, which published its most recent update on global supply and demand only last week, has projected a 2% lower global wheat crop this coming harvest, based on smaller plantings. The US for example, the world’s leading wheat exporter has a considerably lower wheat area. Two percent might not sound much, but the 2016 harvest topped 750 million tonnes, so represents 15 million tonnes, which is slightly more than the UK usually harvests.

Domestic feed barley prices are also mostly higher than the export values meaning any further upside is surely limited to rises in EU values or currency movements. Meanwhile, malting barley exports continue. Most people will have noticed that the expectation for considerably higher spring barley plantings this year is considerable, heading towards the area of the enormous 2013 crop which was the highest planted spring barley area since the late 1980’s. Our belief is that whilst we don’t expect anything quite so high, a rise in the region of  8 to 10 percent is likely. Taking the reduction of winter barley area into account and adjusting for average yields, this could mean a 2-3% increase in overall crop. This is relatively small in terms of the total barley market, but could be more considerable for the malting premium market: Maltsters are sitting quietly happy.

The decline in wheat area in the US and other areas as observed by the IGC (explained above) also means more land becomes available for other crops. So it is that US soybean plantings are foreseen this year. This could of course have a bearing on OSR values. Soybean accounts for the majority of global vegetable oils so is dominant in the pricing of the entire price matrix within which OSR fits. Indeed, OSR prices have fallen a few euros in Europe this month.

The pulse market tends to slow down considerably when the Australian pulse harvest gets underway as it has done this year. Those with old crop beans left in store, should now be looking for opportunities to sell them as these will become more infrequent. The bean market has, as a result slipped back over the last month as buying interest from importers such as Egypt has shifted to the Antipodean marketplace.

A recent report has revealed that an estimated 8.3% of the winter OSR in Great Britain has failed this autumn.  The report by the Kleffmann Group reveals that the losses were mainly due to flea beetle damage and slugs.  The loss of neonicotinoids continues to be a real problem for growers.  This is particularly true in the East and South East of England where losses of 18% and 16% respectively have been reported.  In theseareas, dry conditions at drilling meant plants were slow to establish.  Some of these areas may be re-drilled in the spring, but this comes on the back of four years of declining OSR area and an anticipated 5^th year, if our early Bird Survey forecasts are borne out (-4%).  Despite good prices, in some areas the economics of growing OSR are becoming very questionable simply because yields cannot be achieved.

The wave of mega-mergers in the global agchem and seeds sector are seemingly making some progress with EU competition authorities.  Dow and DuPont have agreed to divest some business units (including parts of DuPont’s crop protection business) to ally competition fears.  Similarly, Sygenta and ChemChina have committed to some small divestments where their activities overlap.  The EU is set to rule on both mergers towards the beginning of April.  However, competition authorities in many other parts of the world (not least the US) also need to have their say.  The parties to both deals would like them concluded before the middle of the year.  The other takeover in the sector is that of Monsanto by Bayer.  Whilst this is a little further behind in terms of regulatory process, the aim would still be for it to be complete by the end of 2017.

The UK Government has given the approval for field trials of a genetically modified (GM) wheat.  Researchers from Rothamsted working with the Universities of Essex and Lancaster have found the addition of a gene from a wild relative allows the modified wheat to photosynthesise more efficiently.  This increases yields by 40% under greenhouse conditions.  Currently no GM wheat is commercially cultivated worldwide; GM crops are mainly maize and soybeans aimed at the animal feed market and cotton and rapeseed for industrial commodities.  No GM crops are cultivated in the UK.  Opposition groups are warning of cross contamination with other non-GM crops.

Old crop wheat prices have been higher than new crop values since the back end of last year (see the chart which compares May 17 (old crop) prices with November 2017 (new crop) prices).  That price spread has continued to increase, to a point where they have risen to comfortably over £10 per tonne above the new crop’s value.  This suggests that the long holders (farmer and merchant) are more likely to sell as much as possible before harvest, whilst the grain buyers, those processing the grain, might be tempted to go into harvest with as little physical stocks as possible.

Old crop and new crop values merge at harvest time as the last of the old and the first of the new meet, as some new crop is available. This suggests that either old crop values will fall or new crop prices rise as we get nearer to harvest. There is still ample time to consider this but it is also worth noting that old crop wheat is comfortably in the territory of contract highs, in fact, nearby futures contracts have not been anywhere near to £150, today’s values, since the middle of 2014.  Export sales will be slowing and if it becomes cheaper to import grain, the seller may have left it too late.  For those with old crop still to sell, maybe this is a useful time to think about marketing the rest.

The opposite is happening in the malting barley market at the moment with short term demand for supplies pushing old crop upwards.  Also, people eat more porridge when it is icy.  So the last few weeks of cold weather have put a small burst into the oat market.  It puts UK oats out of reach from EU buyers, at least for the time being.

With oilseed rape, short term prices are currently relatively buoyant, although as the Southern Hemisphere harvest has started, large vessels will shortly arrive, to potentially remove much more upside in the rest of the old crop marketplace. However, with soybean leading the price matrix for oilseeds, it is worth noting that there is some disagreement on where the crop size is heading.  Speculators who play money games with the markets are currently long and increasing their positions, thereby presumably expecting a shortfall in the crop this year, whereas some analysts are speculating a whopping crop, led by Brazil.  This could lead to some sharp falls if the analysts are proven correct.

In the Autumn, we reported that data from the Earlybird survey suggested that spring cropping would be up this year, especially spring barley. The feedback from seed merchantscorroborates that.  Many merchants are reporting that some spring barley seed varieties are running low on stock.  The considerable rise in spring barley (our projection is currently for a 10% rise) is expected to be mostly in the Eastern and Central parts of England, with no rise in Wales, the South West or Scotland.

The European Commission has registered a European Citizens Initiative (ECI) inviting the Commission to ‘propose to Member States a ban on Glyphosate’.  In addition the petition asks for a reform to the EU pesticide approval procedure and to set EU-wide mandatory reduction targets for pesticide use.  The Initiative will be formally registered on 25^th January and this will start a one-year process of the collection of signatures in support of the ECI.  If the ECI receives one million statements of support, from at least seven different Member States within the year, the Commission must decide within three months whether it will follow the request or not.  Either way it must explain its reasoning.  This latest saga follows the approval by the EU Commission to extend the current licence for Glyphosate for a further 18 months last summer.  The temporary extension allows time for the European Chemicals Agency (ECHA) to deliver its opinion on the possible health risks of the common herbicide, which is expected by the end of this year.

The sugar beet harvest currently underway looks set to deliver average yields.  After two seasons of high output, the 2016 crop looks likely to return to an ‘average’ level – around 70 tonnes per hectare, or a bit below.  This is somewhat better than looked to be the case at one point.  Late-season growth has seen the crop recover after a slow start caused by a cold spring and the wet early summer.  However, it seems there is quite a large variation in yields between regions and growers this year.  The contract price for the current crop is an unexciting £20.30 per tonne, so some decent yields will be needed to produce an acceptable gross margin.  Turning to the 2017 crop, the processor, British Sugar, is still offering additional Contract Tonnage Entitlement (CTE).  This is partly to get the area grown back to ‘normal’ levels after two years of reduced plantings.  But the 2017 crop also sees the end of EU production quotas for sugar, offering scope for further expansion.  The price, as reported in the July Bulletin, is a basic £22 per tonne for 2017, with bonuses, based on the EU sugar price, potentially pushing this higher.  The EU market has risen to a level where these bonuses are now in play.  However, they are calculated over the course of the 2017/18 marketing year which only starts on the 1^st October 2017.  Much could happen over the next year or two.

Some global commodity forecasters are suggesting 2017 could herald an upturn point for global grain prices. Forecasters at Metlife, which is one of the largest US insurance companies, handling the lions-share of US farm mortgages, is suggesting the US maize yield will turn out to be lower than official estimates.  Furthermore, the firm highlights that most commentators have highlighted that planting intentions are lower than they have been for a few years.  Let’s hope they’re right, because the Food And Agriculture Organisation of the UN (FAO) thinks the exact opposite; pointing to record stocks and signs of another good harvest in 2017 in many countries already.

The USDA, whilst not forecasting prices, has been increasing its 2016/17 global wheat ending stocks by nearly 3 million tonnes, a relatively notable amount for this time of year. If the USDA is right, stocks would end up 11½ million tonnes higher than last year and 35 million higher than the year before that (2014 harvest).  That does not sound particularly bullish for prices.  Indeed, the same is true with the USDA’s coarse grain estimates; the 2016/17 ending stock projection has risen this month by 4½ million tonnes, now 10 million tonnes higher than the opening level.

At the same time, reports from the French Farm Ministry state that French wheat plantings are at a 26-year high, leading to a reduction of oilseed rape and winter barley areas.  Again it is difficult to see a positive for wheat prices in this information, apart from another French announcement that the 2016 harvest of grain maize is at a 26-year low.

One other issue to be aware of is the recent appointment of Scott Pruitt as Donald Trump’s head of the US Environmental Protection Agency (EPA).  He is a climate change sceptic and critical of the US biofuel policy.  The US biofuel industry uses more maize than the country exports, at over 50 million tonnes.  We ponder what changes might be afoot in this area in 2017.

On the domestic front, the fast start to the UK grain export campaign has hit the rocks with a substantial slowdown in October and probably November and December.  Notwithstanding a query the HMRC has with the latest release of trade data, it claims exports of wheat were 100,000 tonnes lower in October than in September.  This will be at least in part because of the Pound strengthening slightly at that point.

As we near the end of the UN International Year of Pulses, it is thought exports of UK beans is running at about half of last year’s rate.  This is partly because Egypt, the main buyer, continues to have issues with funding purchases.  At the same time, the Australian harvest will be well on its way too.  Feed grade beans are being used by domestic processors.  Prices are £20 per tonne stronger than this time last year which represents a 16% price rise.  Wheat is now 25% higher than it was in December 2015 and oilseed rape a very respectable 35% higher.  That’s a great thought for a Happy Christmas.