Tag: Arable

Arable Market Update

This time last year we took a look at the global grain supply and demand figures supplied by the International Grains Council (IGC).  The IGC is a politically independent body, so therefore theoretically has greater credibility than the US Department of Agriculture, the other major organisation that publishes global grain statistics.  The only issue is that the IGC has a secretariat of about 20 economists, and the USDA, some thousands, with people on the ground in every region of the world.  In any event, the figures from the two organisations are often relatively similar!

Twelve months ago, we discussed how wheat stocks were at their highest ever, in physical terms.  This year, running at 38 million tonnes (or 5%) less, the fundamentals are looking more positive for grain long-holders (farmers).  Furthermore, as can be seen from the change in pre-harvest expectations back in March 2018, to the last set of figures in November, the reality of what has been harvested in the 2018 year (and continues to be cut in the Southern Hemisphere) is lower than initial estimates; again, bullish for price.  The stocks to use ratio is lower than last year at 35.4%, but still considerably higher than the previous two years, suggesting accessing the right specification and location of wheat by consumers is unlikely to be challenging to buyers in the coming season.  A lower level of stocks held by exporters offers a glimmer of hope to those waiting for prices to rise, but it also suggests that importers have more stocks so might buy less.

 

17/18 figures forecast; 18/19 estimates   1 Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine, US    2 Argentina, Brazil, Ukraine, US    3 Argentina, Brazil, US

A look at the maize figures shows a different story; one of rising stocks and increasing availability.  This indicates that crops grown for energy alone (animal feed and bioethanol purposes primarily), are in relatively bounteous supply.  It suggests that the premium for milling varieties might benefit in the coming year.  However, in another interesting twist to the story, as stock levels are expected to be so much lower this year than for the last few (because of rising usage), the stock:usage ratio is seen falling.  Furthermore, the Egyptians (the world’s largest wheat importers) have been buying Russian wheat at prices above anything they have paid for 4 years.  This, coupled with a weakened Sterling because of recent political shenanigans, supports UK wheat prices.  We are still a long way from harvest 2019 (the IGC hasn’t even started to forecast supply and demand for it as yet).  There was a view that, barring major weather events, as we approached harvest 2019 there would be a downwards ‘correction’ in wheat prices as availability rose.  There is now perhaps a lesser chance of this happening. 

Barley markets are quiet ahead of Christmas, with few buyers or sellers, including no new export business. Premium samples of malting barley retain a good premium for those still unsold.

The oilseed marketplace has seen prices move a little more than grains this month, partly because of the Chinese/US politics which affect soy beans but also as the southern hemisphere crop is being harvested and some is already sold and loading for delivery into the EU.

November Arable Update

There have been few major fundamentals at play over the last month in the grain markets resulting in small fluctuations.  For example, the wheat futures price for May 2019 has fluctuated between £171 and £174.50 per tonne over the whole month, due to various minor factors. This is often the case in the build up to Christmas, when business from millers, maltsters, compounders and other grain users becomes settled, and there are no new surprises in terms of production.

The closure of the two bioethanol plants in the North of England over the last 2 months (reported on in October) means the market place has had to re-calculate the trade balance expectations. Going from a considerable net import requirement for wheat, to a situation of an exportable surplus, impacts UK grain prices and, importantly,  logistics. Not only did wheat prices fall, but also, the availability of grain haulage vehicles dramatically rose. The bioethanol plants had been taking large tonnages of grain meaning the haul was, on occasions over long distances, meaning less grain was delivered. Now, the marketplace for hauliers is much looser, and haulage companies have less chance to dictate terms or prices. Where some delivery slots were being missed when the plants were operational, these are now being delivered to.

Before the closure of the Southampton Hovis flour mill (also reported last month), the UK milling industry was, it transpires, considerably over capacity. It seems Hovis may be able to increase its milling volume in its remaining mill in Wellingborough, to still meet some of the contracts it was supplying from Southampton. Furthermore, other firms have some capacity to increase throughput without building any further mills, meeting any other surplus flour demand. We can conclude that the Hovis closure will not affect total UK bread-wheat consumption, whereas the bioethanol plants will affect feed wheat demand.

It is also still not clear whether the Ensus and Vivergo bioethanol plants are closed for good or just for a while. Neither statements were clear, although we understand that the Vivergo plant has taken its staff of 400 down to about 40.

TRADE

China has bought about 60,000 tonnes of French wheat. The volume sold is less relevant than the trade itself. Whilst the business takes some of the EU surplus out of the local marketplace, which is inevitably bullish for EU grains, this is the first Chinese business for EU grains for apparently as much as 5 years. That is more significant, especially as China, according to the International Grains Council and the USDA owns about half of all global grain reserves. It poses questions about the Chinese grain holding strategy and their attitude to purchasing EU grains.

Barley

Very little has happened in the barley market this month either. As Adam Smith pointed out in the 1700’s, when not much interferes with the marketplace of a commodity, its price tends to head towards the lowest cost of production. Perhaps this suggests if you can’t produce it for the current price, note that somebody else clearly can. Last month we reported that barley had, for a while, been higher in value than wheat (which has a higher nutritional value). Barley is normally about 10% lower in value than wheat and this price spread has started to correct itself .

OSR

The oilseed rape market has also been relatively slow, moved more by currency fluctuations than the fundamentals of supply and demand. Note the Southern Hemishphere crop will start going through the combines within a month and might then have an impact on EU values.

Pulses

The very small and poor quality crop from 2018 is not attracting overseas buyers to our marketplace this year. Despite this, Pulses are comparatively well priced compared with other proteins. These two points suggest pulse prices have more downside than upside (compared with the combinable crop benchmark of feed wheat). The low quality and availability of seed means the 2019 crop is going to cover a smaller area than usual for both winter and spring crops.

June Survey of Agriculture 2018

Defra has released its provisional estimates from the June 2018 Survey of Agriculture and Horticulture showing planted areas in the UK for the main crops, and also estimates for crop production.  The key results for the arable sector are summarised in the table below.  The data is only provisional at present, final results are expected to be available on 20th December.  Wales does not produce provisional results, so 2017 data has been carried forward (except for cattle numbers) to allow UK figures to be presented.

Provisional results show the wheat area has increased marginally but with yields declining, the overall production has fallen by 5.1% on the year.  The total barley area, after increasing in recent years, has fallen but a closer look at the split between spring and winter reveals the spring crop area has continued to increase, although at a slower rate than last year, whilst the area of winter barley has reduced again.  Producers continue to switch to spring crops to facilitate weed (blackgrass) control and to spread workloads.  In addition, the economics of growing spring malting barley are better than winter feed barley in many cases.  The oat area has continued to increase, but a poor harvest has reduced the provisional yield by 9.2% compared with 2017, resulting in overall production for the year down by 2.1%.

UK JUNE CENSUS AND CROP PRODUCTION
AREA – ‘000 Ha 2015 2016 2017 2018 Change 17-18
WHEAT

Yield (tonnes per Ha)

Production (‘000 tonnes)

 1,832

9.0

16,444

 1,823

7.9

14,467

 1,792

8.3

14,837

 1,797

7.8

14,086

 +0.3%

-5.3%

-5.1%
BARLEY

Winter Barley

Spring Barley

Yield (tonnes per Ha)

Production (‘000 tonnes)

 1,101

442

659

6.7

7,370

 1,122

439

683

5.9

6,655

 1,177

423

754

6.1

7,169

 1,157

394

762

5.7

6,606

 -1.7%

-6.7%

+1.1%

-6.3%

-7.9%
OATS

Yield (tonnes per Ha)

Production (‘000 tonnes)

 131

6.1

799

 141

5.8

816

 161

5.4

875

 174

4.9

857

 +7.8%

-9.2%

-2.1%
OTHER CEREALS 35 45 52 51 -1.8%
TOTAL CEREALS

Production (‘000 tonnes)

 3,100

24,734

 3,132

21,967

 3,181

22,999

 3,178

21,742

 +1.6%

-5.5%
OILSEED RAPE

Winter Oilseed Rape

Spring Oilseed Rape

Yield (tonnes per Ha)

Production (‘000 tonnes)

 652

645

7

3.9

2,542

 579

570

9

3.1

1,775

 562

554

9

3.9

2,167

 601

593

8

3.4

2,051

 +6.8%

+7.0%

-6.1%

-11.4%

-5.3%
LINSEED 15 27 26 25 -6.2%
SUGAR BEET 90 86 111 116 +4.5%
POTATOES 129 139 145 142 -2.1%
FIELD BEANS 170 177 193 158 -18.0%
COMBINING PEAS 44 51 40 41 +1.4%
MAIZE 187 194 197 224 +13.3%
FALLOW 214 262 241 269 +11.5%
Source: DEFRA    2018 data is provisional

After recent year-on-year declines, the oilseed rape area rose by 6.8% compared with 2017.  But the difficult weather conditions during the year caused a fall of yields resulting in overall production, provisionally, declining by 5.3%.  The lack of pest and disease control options were a problem in oilseed rape production, with anecdotal evidence that flea beetle has been an issue this current planting season too, in areas not normally as prone.

The new sugar beet contracts offered in 2017 caused a significant increase in planted area, this increased further in 2018 and is getting nearer to its ‘traditional’ area of circa 120,000 Ha.  But a difficult growing year in 2018 and lower prices for 2019 are likely to slow the pace of increase.  The potato area, after recent year-on-year increases has declined and with yield expected to have taken a hit, production will have fallen (see potato article).

The the ban on PPPs on all EFA land for 2018 caused the bean area to decline by 18%.  The full crop area and production figures can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/747210/structure-jun2018prov-UK-11oct18.pdf . The first statistical indications of plantings for next year will come next month with the publication of the AHDB’s ‘Early Bird’ Survey.

June Arable Market Update

Rain has fallen in Scotland which has helped the late-drilled spring crops there, but for much of England, especially in the East, the dry weather is of growing concern.  The dry conditions are now likely to affect cereals yields on the lighter land, despite the very wet spring.  Some reports suggest the growing season has been curtailed at both ends, meaning less time for yield development.  This is potentially true for all combinable crops including both cereals and oilseeds.  Being a relatively small island on the global stage, the impact a lower harvest size would have on price tends to be relatively small, beyond possibly raising the import requirement for some grains.  However, this factor is raising old crop prices for barley, but for most crops, sufficient carry-over is already arranged by processors.

After the significant rises in prices through May, markets for wheat for this coming harvest did not change over the month to the 25th June, despite about £6 per tonne volatility.  However, the values for 2019 harvest rose by £7.30 per tonne.  The spread of values really only took place since the 22nd June as shown in the graph:

As the chart also suggests, the wide price spread is unlikely to remain so large for long suggesting either the 2019 harvest prices will come back down or 2018 values move up.  However, it also gives an indication of the markets expectation of tighter stocks in the future than there is today.  This coming harvest, a lower global stock level is expected, albeit a small decline; perhaps the expectation for greater declines in the 2019 marketing year is mounting.

Markets elsewhere around the world fell in the month to June 25th; Chicago Soft Red Winter wheat for December 2018 for example slipped by over £15 per tonne.  Since early March through to 12th June, a rise in market prices had been occurring on the back of dry conditions throughout Russia and several other wheat-producing countries; each potentially nearing stages where yield might become impacted by lack of water.  However, the market falls have been entirely political, with rumours of Mr. Trump’s trade barriers reversing Free Trade and hampering almost all global markets, including agricultural commodities.  As is often mentioned, trade wars are seldom helpful.  Indeed, the US wheat market lost 8% of its value because of it, explaining the considerable divergence between US and European price movements.

From the opening of the November 2019 contract (Jan 2018) until 19th June, the markets have been gradually moving in the right direction for long-holders (farmers), with prices for 2019 harvest mimicking the nearer ones (just slightly less volatile).  The declines in the Russian crop as forecast by the USDA and other teams of economists will continue to support prices.  Those who calculate supply and demand tables are suggesting the global wheat stock level is likely to take a reduction this coming year for the first time in five years.

Maize production expectations in the US have been very high this month, with crop ratings at record levels for this time of year with 78% achieving good or excellent condition.  The relationship with this measure and crop yields have not been brilliant in the past, but it certainly demonstrates that a drought (which takes a long time to set in and affects very large areas) is unlikely this year.

US soybeans took a greater price hit than wheat as a response to the developments in the global trade war, as such a high proportion of trade is sold from the US to China and tariffs have been imposed on this trade, which will profit the Brazilians and few others.  US soybeans almost reached 10-year price lows in June.

The old crop pulse trade is now completed.  Traders are reminding growers that this is key time for treating the most common insect pests including black bean aphid and bruchid beetle. Four out of every five downgrades of beans last year were because of the beetle.

Potatoes Update

It has been one of the latest and most drawn-out potato planting seasons for years, with around a fifth of the UK crop still to go in the ground by the third week of May.  Progress could have been a lot slower if it was not for the dry weather earlier in the month, while those with planting still to do were looking at weather forecasts with concerned eyes fearing thunderstorms that could further slow progress and damage seedbeds.  There is the very unusual prospect of some early growers on light Suffolk land lifting at the same time as some of their Norfolk and Cambridgeshire neighbours on heavy land just a few dozen miles away are still planting.

The difficult planting season and low prices from last year’s harvest have persuaded some growers to reduce plantings and it can be expected that the national area will be around 5% smaller than in 2017. Although potatoes do have a particular knack of bouncing back given the right conditions, the bumper yields of last year are unlikely to be repeated, especially for any crop planted after the middle of May. Therefore, there could quite easily be a 10% reduction in the GB crop from the large 6 million tonne harvest last year.  That should lead to higher prices.

Free-buy values for the 2017 crop are failing to increase this year despite late planting and the average price is still hovering under £100 per tonne.  A much-delayed start to the new season might eventually push old crop prices up, but growers are not banking on it.

Planting has been late across Northern Europe because of the cold and wet spring, but crops are in the ground and growing.  That could raise the prospect of another reasonably large crop, some of which could find its way across the English Channel if the British harvest is small.  The European industry is expecting an uplift in 2018/19 prices with the April 2019 futures market at €170 per tonne, which compares to €60 per tonne for similar free-buy potatoes today.

December Arable Update

Those watching the global wheat supply and demand tables will easily be able to see that global stocks are higher than they have ever been.  They will also readily be able to appreciate that wheat production has been hitting a series of highest-ever tonnages, including for harvest 2017.  However, what is often missed out is that consumption continues in an almost unavoidable manner to reach heady record levels too.  This is of course because population is still going up.  Having said that, the wheat stocks are comfortably high at nearly 19 week’s supply.

The discussion about DEFRA’s provisional estimate being rather high continued through November and early December within the trading sector, with many not able to replicate the sums.  Certainly, the market was not responding in as bearish a manner as if there was such a large surplus as the DEFRA figures indicated.  The milling premium has come down this month to about £12 in many regions; depending on location and quality.  Some feel that despite the large headline area of milling wheat, many farmers have grown high-yielding Group 1 varieties (such as Skyfall) and cultivated them as feed wheat. This means that despite the higher milling tonnage on paper, in reality, it might leave a bigger sorting job for millers and merchants.

It also appears that in the later parts of the autumn, the weather conditions for drilling gradually improved, meaning many growers managed to plant a higher than usual area of late winter crops.  This may slightly amend the figures found in the Early Bird Survey (see next article) which has a closing date for responses of early November.  It is now looking like the winter wheat area may be very similar indeed to last year’s and, at the moment, a small decline of winter barley.

News published this week by the USDA shows a projected increase in the area of oilseed rape in France, the largest crop in Europe, and, crucially, a rise of soybean area in the US.  It might seem miles away and a different crop, but as it accounts for 75% of the global vegetable oil market, it makes an impact to all oilseeds in the world including oilseed rape in the UK.

Overall markets are slow now, most buying completed ahead of the Christmas break, the surge in requirements has died away as bakers and other supply chain grain users are using their last tonnages before the New Year.  Pulses are not happening now until the New Year, and then, watch out for new crop supplies from Australia.