Category: Arable

Global Grain Markets

Global grain markets have continued to fall from recent highs as the northern hemisphere grain harvest kicks-off.  The prospect of grain coming onto the market is reducing the build-up of pressure caused by the ongoing war in Ukraine.
On 17th June 2022 the USDA released its latest forecasts of agricultural supply and demand.  Consumption of wheat, barley, and maize combined is forecast to outstrip production in the coming season.  This suggests that while harvest progress is moving prices down at the moment, underlying support remains.  Where prices settle after harvest will depend on many factors, most of all actual yields.
 
Winter crop prospects in the US and parts of Europe have been challenged so far this season.  In the US, the harvest of winter wheat has been quicker than normal so far.  To the 19th June 2022, 25% of the crop is harvested.  Crop conditions in US have dipped again for wheat, but the outlook for spring crops is positive.  This is driving the mixed movement in prices.
 
In the EU, persistent dryness throughout May and June has resulted in yield estimates for wheat and winter barley falling below the five-year average.  The impact is not limited to one region of the EU with dryness affecting many of the key grain producers.
 
Russia is expected to harvest a bigger than average wheat crop this year.  The impact of this crop on global prices will depend on the level of the crop available to be exported.  At present exports are also forecast to increase compared to average, but much will depend on how easy it is for Russia to export the crop in light of present tensions.  Russia has increased its export taxes to preserve wheat for domestic consumption.

UK Arable Market Update

With harvest creeping ever closer, attention remains on the weather in the UK.  Generally, crops are looking healthy, benefitting from rainfall in the latter half of June.  Concerns had been growing around the heat in the middle of the month and AHDB’s Crop Condition Survey highlighted crops moving backwards to 24th May, relative to the end of April.

UK prices have recently fallen, tracking the decline in global markets.  Trade in old crop is now largely over and attention from buyers will be focused on new crop.  Demand for new crop, in particular barley, is likely to be lower next season driven by a decline in the size of the UK pig herd.

UK feed wheat values have fallen, November-22 futures closed at £282 per tonne on 23rd June, down almost £36 per tonne from the end of May.  November-23 futures have fallen by £20 per tonne to just over £248 per tonne.

Barley prices have also dropped, feed barley for harvest movement is trading at a £32 per tonne discount to wheat.  Malting premiums have reportedly firmed slightly although the feed base has fallen.  The winter barley harvest in the UK is now imminent.

Oilseed rape prices have responded to weakness in global vegetable and mineral oil prices.  Concerns over the global economic picture has been coupled with expectations of large soyabean crops in South and North America.  UK ex-farm oilseed rape prices have fallen £775 per tonne at the end of May to £596 per tonne, as at 24th June.  Field bean values have generally fallen with other output prices, albeit at a slower rate. As of 24th June, beans were quoted at £306 per tonne (spot, ex-farm).

Potato Update

Potato planting conditions were largely good this year but drought fears increased in April and early May.  They were alleviated by rain in late May and into June and, by late June, crops were looking in good condition.  However, growers were already expressing concern that dry weather could impact the crop again through July and August.

The disbanding of AHDB Potatoes means there are no area estimates for the second year running, but newsletter World Potato Markets is estimating a 5% drop in the GB area to less than 110,000 hectares, which would be the smallest area on record.  If the five-year average yield of 44.7 tonnes per hectare is achieved then the British crop will be almost 4.9 million tonnes; about 200,000 tonnes less than the 2021 crop and the smallest since 2012.  A repeat of the very wet season of 2012 would mean a record small crop of 4.01 million tonnes, whilst a repeat of the 2018 drought would deliver a 4.52 million tonne harvest.  If 2017’s bumper yield is replicated then 5.35 million tonnes could be produced.

The prospect of an historically small crop has not galvanised the market in the same way as it has done in the past.  Prices remain lacklustre with significant stocks of old crop weighing on the market.  Newsletter Potato Call is quoting prices of no more than £160 per tonne for packing Maris Pipers.  Many growers are not enthused by the contracts they have received for the 2022 harvest and fear that free-buy sales will not cover elevated fertiliser, fuel, energy and other costs.  If growers do lose large amounts of money from the 2022 crop, then it is likely that the 2023 area could be even smaller.

Potatoes are proving very good value for shoppers as they cope with the spiralling cost of living.  An Office for National Statistics survey found that potato prices in discounters fell by 14% in the year to April, one of only seven other products out of a basket of 30 to see a price drop.  Another faller were frozen chips, while pasta jumped by a third.

The UK remains one of the largest consumers of potatoes in Europe by volume and per capita, requiring the equivalent of 6.5 million tonnes a year.  Further area reductions will make the UK market even more dependent on imports, especially of processed products.

Latest export figures show that the UK exported 15,740 tonnes of potato seed in the first quarter of the year.  That was 42% more than last year when the EU’s ban on UK potato seed imports was imposed following full Brexit.  Despite the increase in quarterly sales, seed exports from July 2021 to March 2022 were 13% lower than last season.

Whilst there is gloom in the British potato industry, the recent World Potato Congress in Dublin heard of the potential for the crop globally, with the head of UN Food & Agriculture Organisation Dr Qu Dongyu urging African and Asian farmers to plant more potatoes in their rotations to improve output and ensure food security.

Beet Advance

Sugar beet growers will be offered a 25% advance payment on their 2022 crop.  It is an acknowledgement of the cashflow pressures farmers are under.  Growers will have to opt-in for the advance payment, which will be made in the third week of June.  Based on the 2022 contract price of £27, it will be worth £6.75 per tonne.  The tonnage will simply be based on the growers Contract Tonnage Entitlement (CTE).  The advance will only be available to farmers who have held contract tonnage for the past three years, although British Sugar states that other growers should discuss their situation with account managers.

UK Grain Market Update

UK grain markets have, unsurprisingly, followed the global direction in prices over the last month.  Wheat prices are higher, month-on-month, although wheat futures are lower than recent highs. Ex-farm feed wheat (spot) was quoted on 20th May at £326 per tonne, with a milling premium of £27 per tonne.

AHDB crop condition figures showed crops to be in good health through to the end of April.  Some 83% of winter wheat and 84% of winter barley rated as ‘good’ or ‘excellent’.  There has been rainfall across much of the UK in May.  However, rainfall in England was still behind the long-term average for the month, up to the week ending 17th May.

New crop UK feed wheat futures are also considerably higher than a month ago.  On 23rd May November-22 futures closed at £332.50 per tonne, up almost £45 per tonne on the month. Challenging conditions for crops in the US and EU are combining with ongoing uncertainty in the Black Sea region.

Prices for the 2023 crop have also risen.  November-23 feed wheat futures closed on 23rd May at just over £271 per tonne, up almost £20 per tonne on the month, but down from a high of £295 per tonne on 16th May.  The direction of the 2023 crop is uncertain at present, especially with limited futures trade.

Ex-farm feed barley prices also increased during the month, but only marginally.  The feed barley discount to feed wheat was quoted at almost £22 per tonne on 20 May, driven by a lack of interest from both buyers and sellers.

The price of oilseed rape has fallen in recent weeks, but nearby prices were still in excess of £819 per tonne, ex farm. Recent market reports highlight further falls in delivered prices for both harvest 2022 and 2023, with the latter now quoted at £580 per tonne delivered into Liverpool. This reflects Indonesia lifting its palm oil export ban.

Pulse prices had lagged behind the rises seen in other commodities.  However, feed bean values increased by £26 per tonne across the month, to £328 per tonne.  Premiums for new crop beans are squeezed.

Global Grain Markets

Global grain and oilseed prices remain high.  Whilst a key driver is the war in Ukraine, there are also a number of other factors at play; there are concerns for crops in the US, EU, and India which are supporting new crop values.

EU Crop Conditions

Conditions in continental Europe have mirrored conditions in the UK.  Many countries, including France, Germany, and Romania have experienced a lack of rain.  For France and Germany, two key grain and rapeseed producers this situation does not look like changing before the end of May.

French agency FranceAgriMer has downgraded its view of winter cereal crop conditions.  The EU crop monitoring report from the EU Joint Research Centre, published on 23rd May, further highlights the challenge of dry conditions but is still optimistic on yield impact.  If conditions remain dry, a yield impact is to be expected, this will support the global grain price.

India

India has grown in importance to global grain markets in recent years.  The third largest wheat producer in the world, after the EU and China, is forecast to export 8.2 million tonnes of wheat in 2021/22, rising to 8.5 million tonnes in 2022/23.  However, dry conditions over the past couple of months has sharply reduced forecasts of output for the 2022 harvest.  This has prompted the Indian government to ban exports of the grain. However, immediate concerns were softened, with sales to countries with irrevocable letter of credit to be honoured.

USA Crop Conditions

While US winter wheat crop conditions are unchanged on the month, they continue to be a concern.  Drought conditions are observed in some of the key wheat producing states and also in parts of the High Plains (important for spring wheat).  Maize plantings are also lagging behind the five-year average, as are spring wheat plantings.  This is most notable in North Dakota, which produces more than 50% of the US spring wheat crop (6.9 million tonnes, 2017-2021 average).  Crop conditions in the US will be watched closely over the coming weeksa and will be a key driver of grain prices.

USDA Supply and Demand Estimates

The USDA published its latest Supply and Demand estimates on 12th May.  The report included the organisation’s first forecasts of the 2022/23 crop.  Both the maize and wheat supply and demand balance are expected to tighten.

The stocks-to-use ratio for wheat is forecast to be the tightest since 2014/15 at 34.1%.  However, China is also expected to accumulate more stocks in 2022/23.  Excluding China from the analysis tightens global wheat stocks to the tightest point since 2007/08.

For maize, global stocks-to-use is seen falling slightly year-on-year.  Conversely, global maize stocks-to-use, excluding China, is set to rise.  This may add some downward pressure to maize prices, widening the gap to wheat.  If the gap is favourable for consumers, this may also undermine wheat prices slightly.

 

UK Arable Markets

UK winter arable crops are looking in good order, according to a recent AHDB Crop Condition Survey, conducted at the end of March.  That said, March was drier than normal, a trend which has continued through April.  The long-range weather forecast suggests dry weather will continue for most areas of the UK.  This may start to impact potential yield if it carries on for a few more weeks.

UK arable markets have followed the global trend.  Nearby ex-farm feed wheat prices gave moved up to £308.20 per tonne in the week ending 22nd April 2022. Prices had fallen coming into April but have gone on to set new highs.

The price of ex-farm feed barley has narrowed the discount to wheat throughout April.  In the week ending 22nd April, nearby feed barley was quoted at £303 per tonne.  Wheat and barley prices have now risen by more than £83 and £94 per tonne respectively since Russia’s invasion of Ukraine.

The rise in prices has helped to offset some of the rise in input costs, with fuel and fertiliser experiencing sizeable uplifts.  There are indications that the price of ammonium nitrate has now fallen back from recent highs.  But high input costs will still represent a significant challenge for the 2023 crop.  New crop UK feed wheat futures have been trading at around £250 per tonne since the middle of April.  This may offer a useful hedge against high input prices for the coming season.

Most arable farmers will have already ordered their spring fertiliser – often some months ago.  There have been reports of availability issues for orders made this spring.  However, there is currently no shortage of fertiliser in the UK.  In fact, the main UK manufacturer is having trouble selling what is producing (perhaps not surprising given current prices) and is exporting considerable tonnages.  The issue with delivery and long order times are mainly for those ordering part loads and are largely due to logistics.  Those with a less-than-stellar credit history may also struggle.  Manufacturers and merchants are having to deal with their own cashflow pressures and do not want any bad or late debts.   

Rapeseed prices have also risen, with Ukraine a key producer of sunflowers and rapeseed.  Ex-farm oilseed rape prices are quoted at more than £845 per tonne; a 40% increase since 25th February.

One crop that has not seen the same degree of price rise is beans, which were quoted at £302 per tonne, ex-farm. This is the first time beans have been quoted at a discount to barley since December 2006, demand for feed beans by UK consumers is reportedly lacking.

Global Grain Markets

Arable markets have continued to react to the ongoing conflict in Ukraine.  May-22 UK feed wheat futures have moved up further, now trading around £320 per tonne.  In the short-term, prices for commodities and inputs will be driven by uncertainty in Ukraine.  The re-escalation of conflict in the east of the country, where much of Ukraine’s wheat and barley crop is grown, will continue to drive prices.

While the war in Ukraine has been the key driver of grain markets over the past three months, there are also other factors driving prices.

Severe drought in parts of the US wheat belt, has seen US wheat crop conditions rated poorly.  In the most recent USDA report (18th April 2022) 37% of the US winter wheat crop was rated as being in ‘poor’ or ‘very poor’ condition, the highest proportion for this time of year since 2018.  Difficult crop conditions at this time of year do not guarantee low production, in 2018 yields in the US, whilst down, were ahead of the five-year average even after crops were rated poor earlier in the season.  However, the crop needs rainfall, which looks lacking at present.

On top of the concerns for the US wheat crop, the US maize crop is also getting smaller.  Reports suggest farmers in the US are opting for soyabeans over maize, driven by lower costs of production.  The combination of a smaller US winter wheat crop and smaller than expected maize crop will support new crop grain prices.

The latest International Grains Council (IGC) supply and demand estimates, support the view of tight markets.  World grain closing stocks are forecast to fall by 26.5 million tonnes from 2021/22 to 2022/23.  Major exporters’ closing stocks of grain drop by 14.2 million tonnes.

It is worth adding that owing to the situation in Ukraine, all forecasts should be treated with caution.

GM Barley Trials

Field trails of a genetically modified barley have been approved by Defra.  The study will use gene-editing techniques to investigate the role of existing barley plant genes that interact with soil microbes.  The aim is to make the plants more efficient users of soil nutrients and reduce the need for artificial fertilsiers.  The trials will take place over the next five years at three sites of the Crop Science Centre; a partnership between the National Institute of Agricultural Botany (NIAB) and the University of Cambridge.

Loam Farm Update

Last month we reported on how difficult it is to budget at the moment due to the sudden and large rises in costs and prices.  But it is important that budgets are revisited.  We presented the updated figures for Friesian Farm last month and this time we look at Loam Farm.

The table below shows the results for harvest years 2020 and 2021, a provisional figure for 2022 and a forecast for 2023.  For harvest 2022, fertiliser was purchased last summer, i.e. before the recent price hikes.  The farm therefore shows spectacular profits for the year as a result of the high sale prices likely and (relatively) low costs.  For harvest 2023, the significant increase in variable costs can clearly be seen, together with overheads – partly driven by fuel but also labour, machinery and general overhead costs.  This results in the margin from production becoming negative.  The fall in BPS is starting to ‘bite’ but is mitigated by involvement in the Sustainable Farming Incentive (SFI).

Loam Farm is a notional 600 hectare business that has been used since 1991 to track the fortunes of British combinable cropping farms.  It is partly owned and partly rented and is based on real-life data. It has one full-time worker and employs harvest casual labour.