Category: Arable

Crop Areas

The AHDB has now published its Early Birdy Survey of planting intentions at a regional level. The survey is conducted by The Andersons Centre, with the support of the AICC and other agronomists.

The intentions for 2023 show a year-on-year increase the area planted to wheat. UK wheat area is expected to reach 1,821 hectares, an increase from 1,809 hectares in 2022. At a regional level, plantings are seen falling in the key production regions East Midlands (down 0.5%) and the Eastern Counties (down 3.1%)

Wheat area is generally expected to rise in the North of England and Scotland. In Scotland, wheat plantings are seen rising by 8.5% to 116 thousand hectares. While wheat area is up, the high price of nitrogen at planting may have impacted both varietal and agronomic choices. While the price of nitrogen has subsequently fallen since planting, so too has the price of wheat.

The big “winner” is oilseed rape. Plantings of OSR are seen rising in all regions, contributing to a 14.2% rise in the UK planted area, 416 thousand hectares. Of course, pest pressure will be key for the crop, and it remains to be seen how much will be carried forward to harvest.

To accommodate the rise in OSR and wheat plantings, the area of barley and oats has fallen. The barley decline is driven by an expected decline spring barley, down 5.9% year-on-year to 632 thousand hectares. Winter barley is up but by less than the decline in spring barley, showing a 4.0% rise to 450 thousand hectares. The oat area is expected to fall by 4.3%.

UK Grain Production & Markets

Defra have now published official figures for UK grain and oilseed rape production.  Previous figures had only covered England.  The latest figures show UK wheat production, in 2022, at 15.54 million tonnes.  This is 14% above the 2017-2021 average (13.65 million tonnes).  The figures include the second highest wheat production figure for Scotland on record, going back to 1999. The Scottish production figure, 1.00 million tonnes is driven by a record yield of 9.3 tonnes per hectare.

Total barley production is also up despite a fall in overall acreage.  This is driven by an increase in the proportion of winter barley grown versus spring, as well as a rise in average yields.  Total barley production is seen at 7.385 million tonnes.  Oat production is down year-on-year, but remains above 1 million tonnes for the fourth consecutive season.  Oilseed rape saw a resurgence in rotations in 2022, and the resultant production is seen at 1.36 million tonnes.  Production of OSR remains below the 5-year average however.

UK grain markets have followed the free-fall of global prices into December.  Ex-farm feed wheat (spot) was quoted on 16th December at £229 per tonne.  This is down more than £15 per tonne from the end of November.  The price of feed wheat is now only £10 per tonne higher than the same point last year.

Feed barley prices have followed a similar path, and ex-farm barley is now just over £1 per tonne higher than 17th December 2022.  The UK grain market is fundamentally better supplied than it was last season.  There is also the wider factor that global markets seem ‘comfortable’ with the current drivers of supply and demand, despite grain markets being tighter year-on-year.  The milling wheat market continues to hold a premium in excess of £50 per tonne over the feed market, an ongoing reflection of the lower protein crop harvested this year.

Oilseed rape prices also continue to fall, driven by expectations of large oilseed crop globally.  This is especially true in Brazil where soyabean production is forecast to reach a record 152 million tonnes; up from 127 million tonnes last season.  Ex-farm oilseed rape was quoted on 16th December at £463 per tonne.

Pulse markets continue to suffer from a lack of demand and have tracked other commodities lower.  Feed bean and peas are quoted at £255 and £245 per tonne, respectively.

Investors Push Wheat Prices Lower

The value of wheat has fallen considerably over the past month.  A bumper crop in Australia, forecasts for strong South American maize production, and the continuation of exports from Ukraine have all contributed to the slide in prices.

Furthermore, data from the Commodity Futures Trading Commission (CFTC), who monitor the position of traders in futures market, highlights that ‘managed money’ funds have consistently been net-sellers of Chicago wheat futures since the beginning of October.  Fundamentally, this means that those in charge of investment funds expect wheat prices to go lower.  The net position of such funds shows that investment funds are now the most bearish they have been since April 2019.

This bearish view for comes despite the global supply and demand balance for wheat being the tightest since 2007/08 and is a potential indicator of recessionary concerns.

The maize picture, which is an underlying driver of wheat markets, has been more positive with prices rising in recent days.  Much still hangs on the South American maize crop.  There are concerns for Argentinian production amid drought, whilst the Brazilian crop outlook is still positive.  The Brazilian crop is typically more than twice the size of the Argentinian one.

May 2023 UK feed wheat futures have tracked the global wheat price decline, falling to around £240 per tonne, a drop of around £20 per tonne from mid-November.  New crop, November 2023, futures have dropped by a similar amount, to just under £228 per tonne, on 15th December.

While the mood is generally negative around grain markets, there are still some potential positive drivers.  In particular, there is much discussion at present about the decline in India’s wheat stocks. India consumes 13% of the world’s wheat, and stocks are expected to hit a six-year low.

UK Grain Markets

UK grain and oilseed markets have, unsurprisingly, continued to follow global trends.  Spot feed wheat was worth £241.50 per tonne in the week ending 18th November 2022; this is £16.70 per tonne lower than at the end of October.  On top of the global grain market falling, there are concerns about the impact of Avian Influenza and the smaller pig herd on feed grain demand.

Feed barley was worth £228.60 per tonne on 18th November.  This is a fall of £9.60 per tonne from the end of October.  The discount of barley to wheat has narrowed over the past month, this is reflective of the first official supply and demand estimates of AHDB, published in November.  The figures show opening stocks of barley at a ten-year low.  Despite this, the surplus available for export remains greater than last season and animal feed demand remains a key watch point.

While milling wheat prices have fallen, the premium of ex-farm milling wheat over feed has grown.  This is driven by reduced availability of high-protein milling wheat (13% protein plus) and the high cost of gluten as an alternative.  Milling wheat is at a near £55 per tonne premium over feed, as at 18th November.

UK oilseed rape prices have fallen in line with global oilseed benchmarks.  Ex-farm oilseed rape is now worth £518 per tonne, spot.  There is less demand in the UK this season with the closure of the Hull crushing facility, announced in June, set to take place in December.

The pulse market continues to suffer from a lack of demand, with the value of peas and beans having fallen to the end of the month.

Global Grain and Oilseed Markets

Throughout November the price of grain has fallen back considerably.  Futures prices were dropping before the announcement of a 120-day extension to the Ukrainian grain export corridor, 17th November.  Global grain markets have softened primarily on expectations of a large maize crop.  The crop underpins global feed and industrial (ethanol) markets.

There are expectations of record maize production in South America, in response to high prices.  Brazilian weather conditions appear well suited to a big crop.  Conversely, Argentina is also forecast for a record maize crop despite currently experiencing a severe drought.  The drought in Argentina has, however, trimmed production outlooks for wheat.  South American weather remains a key watch point for grain markets, particularly with an active La Niña (the third in three years).  La Niña brings dry weather to South America.

Despite forecasts for bumper maize production, the balance of global grain supply and demand remains tight.  This ought to offer some underlying support.  However, concerns about the impact of recession on demand, particularly industrial demand, seem to be outweighing this fundamental tightness.

Demand concerns are also impacting global oilseed prices.  China’s zero-tolerance approach to Covid is driving expectations of reduced palm oil demand.  This, combined with increased palm oil production in Southeast Asia, has depressed prices.  This has impacted rapeseed markets with the underlying value of rapeseed oil falling.  Additionally, a rebound in Canadian canola (rapeseed) production following last year’s disastrous crop is leaving global oilseeds well supplied.

Potato Area and Production

High costs, difficult weather conditions, poor potato prices, and strong cereal markets mean there is great uncertainty about potato plantings for next year.  The lack of information about the size of this year’s crop is not helping.  The disbanding of AHDB Potatoes last year means there is no one collecting national potato planting, yield and production data.

World Potato Markets has estimated that the 2022 area was down 5% on the official Government UK estimate of 134 900 hectares in 2021.  That area includes all four countries of the UK – England, Scotland, Wales and Northern Ireland plus some land associated with potato production that is not actually planted with the crop.

In terms of yield, in 2018, when the UK suffered a similar drought to this year, the average was 35.9 tonnes per hectare (6.8% lower than in 2021).  The result is a crop of 4.845 million tonnes – down 11.4% on last year; the smallest since 2012 and only the third time on record that the volume has fallen below 5 million tonnes.

The lack of potatoes has not fed into much higher prices for free-buy potatoes.  Newsletter Potato Call reports that good quality Maris Piper for packing is making £255/  per tonne; not much more than a year ago.  Some of the very best is being secured for pre-Christmas delivery at £300 per tonne.  There is some strength for bagged potato prices for fish and chip shops, but growers have reported concerns that some stocks are deteriorating because of high temperatures in stores.  Growers will welcome the colder conditions that have arrived recently.

The first processing contracts for 2023 are being offered and are up on last year which has prompted some seed buying.  However, there is still an expectation among many that the area of potatoes could be down another 10% on last year as growers react to the lack of demand for their 2022 crops, the high cost of inputs and strong and stable cereal prices which can be secured through the futures market.  A 10% reduction in area would mean the smallest area ever at 121 500 hectares, while a 10-year average yield of 39.4t per Ha would deliver a crop of 4.787 million tonnes.  As recently as 2017 the UK produced a potato crop of 6.218 million tonnes.  It looks like it will struggle to achieve 5 million tonnes in the foreseeable future.

Wheat Market Moves from West to East

Over the past twenty years both Russian production and exports of wheat have grown to a point where Russia is the leading exporter of the grain. There has been similar growth in Ukraine, albeit to a lesser degree.

Exports of Wheat from Top Five Exporters and Ukraine

Source: USDA

While the area of wheat planted to wheat in Russia has grown by almost 6.2 million hectares since 1991, it is growth and stability of yield which has done much of the heavy lifting. At the breaking of the Soviet Union, Russian wheat yields were around 1.7 tonnes per hectare, now they are nearer three tonnes per hectare.

In Ukraine, excepting 2022, the area of wheat is broadly similar to 1991, as with Russia yields have grown.

The increasing importance of Russia and Ukraine on global wheat prices should be of little surprise. This is especially true given the impact of the last eight months on grain prices.

Beyond Russia and Ukraine, the shift to the East is evident.

The closest rival for Russia’s export crown is the EU. The same pattern of movement in key exporting nations from West to East is happening in the EU

In 2003/04, Central and Eastern Europe[1] accounted for 24% of total European wheat production. Twenty years on, the same block of countries is expected to account for 38% of production in 2022/23, an increase of twenty-seven million tonnes.

Share of EU wheat exports from Central and Eastern Europe

Source: Eurostat (EU Commission)

The same block is also seeing vast growth in its exports. Using a similar timeframe to the one above, over the last nineteen years (2003/04 to 2021/22) Central and Eastern Europe has grown its share of wheat exports from 13% of the EU (exc. UK) total to 52%. It is worth highlighting that the export figure is somewhat inflated by poor production in West Europe. That said, the direction of travel still holds.

So, why does this matter?

While anything remains possible, it seems likely that EU wheat supplies are safe from conflict, even with Romanian and Bulgarian wheat needing to pass through the Black Sea to the Bosporus Straight.

With the three key wheat futures markets, Chicago, Paris, and London, clearly not moving, crop conditions in the US and Western Europe are still key to sentiment.  But we need to pay increasing attention to conditions in Eastern Europe.

The Paris futures exchange is based on a specification of wheat delivered into one of five locations on the west coast of France. Traditionally, we would consider our price relative to Paris futures as a marker of how competitive UK grain is on the world stage.  France is still the top EU exporter, and comparisons to French prices remain important.  However, it is now as important to consider the competitiveness of our export prices relative to Eastern Europe nations.

The UK has an exportable surplus of wheat this season, and the UK price will have to compete with EU values to find a home.

[1] Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia

Grain & Oilseed Market

This month, the first UK wheat and barley supply and demand figures for harvest 2022 were published by AHDB.  A 15.7 million tonne crop has left the UK looking well supplied.

Given the increase in available supplies relative to last season, the discount of UK feed wheat futures to Paris milling wheat futures has grown.  This will prompt increased export demand for UK grains.

The Pound closed on Friday 21st October at £1=$1.13, almost 7% lower against the Dollar than on 1st July.  It is worth highlighting that this is up significantly from the low of £1=$1.07 at the end of September.  The political and economic uncertainty in the UK that has caused the Pound to weaken at least increases the attractiveness of UK exports.

Wheat values have bounced around over the course of the past month, mostly driven by uncertainty over the Ukraine-Russia grain shipment deal.  However, with things returning to the status quo in the Black Sea, at least for the time being, grain values have fallen back.  On Friday 21st October, ex-farm feed wheat was worth £256 per tonne, down £12 per tonne from 23rd September.  Milling wheat prices have fallen £11 per tonne over the same time period to £311 per tonne.

AHDB’s barley supply and demand estimates shows UK production at 7.2 million tonnes.  The commentary alongside the estimates highlights a decline in barley demand in animal feed driven by a switch to wheat.  Barley is currently at a £19 per tonne discount to feed wheat.  If demand falls further, without a strong gain in exports the discount will grow.  Given the reductions in the size of the pig herd, a fall in barley demand seems likely.

In the next three months, the size of the South American maize crop will be a key driver of price.  Brazil and Argentina are key suppliers globally and are set to experience a third successive la Niña. The weather pattern brings drier than normal weather and tends to reduce output.

UK ex-farm oilseed rape is worth £521 per tonne, up almost £30 per tonne on the month.  Vegetable oils are the key driver of support for oilseed rape.  The destruction of a key sunflower oil processing plant in Ukraine, uncertainty over palm oil output in Southeast Asia, and strong EU purchasing (both rapeseed and sunflower seed) combined to support prices.  A large soyabean crop, globally, and expectations of big canola (OSR) crops in Australia and Canada is tempering prices.

Feed bean values continue to move lower on lacklustre demand both domestically and for export.

UK Grain and Protein Prices

Recent rainfall has been beneficial, and planting of winter cereals is underway in parts of England.  The East in particular, however, remains very dry.  Primary cultivations are being completed, but increased fuel use and worn metal from hard ground is raising costs.

Unsurprisingly, UK grain and protein markets continue to follow global trends.  UK feed wheat values have moved back up to £260 per tonne (spot) for the first time since the beginning of July.  New crop (2023 harvest) values are likely to be around £10 per tonne below this value.  This based on the assumption that they are worth around £10 per tonne below November 2023 feed wheat futures.  In reality, it is hard to gauge a value for new crop wheat in such a high-priced market.

Milling wheat is currently at a £40 per tonne premium to feed wheat.  Early data from the AHDB Cereal Quality Survey shows that protein content is down this year; averaging just 12.5% on UK Flour Millers Group 1 varieties.  This does not necessarily mean that there will be an increased premium for ‘in specification’ wheat, with much depending on the performance of the crop in baking trials.  At the moment, the crop is thought to be performing well.

Feed barley is moving at a discount of approximately £20 per tonne to feed wheat, or £240 per tonne. The discount is at broadly normal levels, given the elevated price of grains.  Demand for barley will be lower this season owing to the reduced size of the pig herd.

Globally, it appears that there is going to be a much-improved supply of oilseed rape and other oilseeds this season.  This is primarily due to increased production, year-on-year, in Canada.  As a result, the price of rapeseed, nearby, has moved to pre-Ukraine war levels, to around £500 per tonne.

Feed bean values have moved back up with wheat values.  That said, pulse markets are thought to be well supplied, both domestically and globally.  Increases beyond those tracking wheat are unlikely especially given expectations of favourable weather for crops in Australia; a key export market competitor, during their spring.

Global Grain Production

The latest International Grains Council (IGC) supply and demand figures show a year-on-year reduction of stocks of grains globally.  The change in global grain supply is driven by tighter maize production, the price of which underpins the feed grains market.

The IGC forecast of maize production is ten million tonnes lower than it was in July at 1,179 million tonnes.  If realised, maize production would be 40.9 million tonnes lower than in 2021/22. Even with a fall in usage, ending stocks would be 5% lower year-on-year.  The maize production forecast has mostly declined due to the conflict in Ukraine.  However, the impact of drought conditions in the EU cannot be overstated.  Maize production in the EU is forecast at 59.6 million tonnes in 2022/23, down 8.7 million tonnes from the IGC’s July forecast.

Wheat production is forecast to decline by 2.9 million tonnes, whilst usage is seen rising by 2.5 million tonnes.  Global wheat stocks are forecast to decline by 4.6 million tonnes.  Excluding Chinese supply and demand from the equation, global stocks are estimated to fall by almost nine million tonnes.

With the grains supply and demand balance tightening, year-on-year, we can expect support for grain prices to remain.  But, bear in mind that the lack of supply from Ukraine will already be priced-in to some degree.  Any positive changes in the conflict will still drive a fall in prices.

The oilseed market is moving in the opposite direction to grains.  World soyabean production is expected to increase by almost twelve million tonnes.  Ending stocks of soyabeans are forecast to rise by almost ten million tonnes.  The next forecasts of global supply and demand from the USDA are due on 12th September 2022, with the next IGC figures published on 22nd September 2022.