Tag: barley

Arable Market and Harvest

UK Combinable Crop Harvest – What Should We Expect?

The harvest is in its early stages; for some the oilseed rape and barley is gathered, for others it has just been desiccated or is still ripening.  At this stage of harvest, without fail, commentators remark on the high variation of yield and quality.  The first fields always show variation in performance, and even in consistent years, the first fields present an unreliable bellwether for the rest of the harvest.  This is particularly as light southern soils often reach harvest before the heavier soils, and show greater yield variation, especially in years when drought has played a part in the year.  It would astound us if overall the combinable crop yields turned out high, especially the winter crops.  A good average yield of any of the main crops this year would either reset our expectations of what nature is able to do with plants in highly uncompromising conditions, or lead us to question the reliability of those calculating national estimates.

OSR

There will of course be some fields which just avoided being replaced in the spring, and harvest barely enough to justify the combine entering the field, but other fields will provide good crops.  Like all other crops, it is too early for any meaningful analysis.

Remember, the standard FOSFA contract for oilseed rape is for 9% moisture.  Oilseed rape is not accepted at moisture levels above 10% (or drying charges are incurred).  There is a gain of 1% in price for every 1% the moisture decreases to 6%.

Cereals

Some traders consider the winter barley harvest is 75% completed already (not the case round here by a long way – Ed).  Exports are taking place, both physical shipments and also orders.  UK feed barley is cheapest in Europe at the moment.  The demand for barley as animal feed (barley is generally for ruminants) seems to have dropped across some nations as people eat out less and therefore rely on white meats and vegetables in the home.  Demand for barley is thus down a bit.

Over the course of the last year, the price of wheat for this harvest has been gradually rising, albeit with considerable fluctuations from £140 to almost £170 per tonne on the futures market.  The prices for the 2021 harvest have remained highly range-bound between £150 and £155 per tonne.  The slowly declining UK and European crop size has been evident throughout the year, so prices have picked up, but so far of course, the crop for 2021 is unknown.

Globally

Most combinable cereals are grown in the Northern Hemisphere, so our harvest time will be more or less in line with most others.  Across the EU, harvest is quickly moving northwards.  In France and Germany, the two main grain producing countries, harvest is progressing in an average condition (not as well as last year).  The Russian wheat yield is reported as the smallest for at least 6 years, and smaller than initially projected.

Marketing

When it comes to marketing combinable crops this year, the focus may need to be more on the impacts of a Brexit than the actual marketplace itself.  Yes, we acknowledge similar comments were made following last season’s harvest and nothing happened, but Brexit has now occurred, and more importantly, a new trading situation will be implemented as of January next year.  This could possibly be trade with the EU without a trade deal.  These factors will affect the value of the marginal tonne (either exported or imported) which sets the price in the whole market.  We do not know the outcome yet, but farmers might consider this when planning on the date they fix the price of their grain (not necessarily the date of delivery).

Harvest 2020 Prospects

In the June 2019 edition of this Bulletin, we wrote “It never rains, it always pours!  By early June, some were concerned about the dry soil conditions, by the end, the concern was flooding.”  Some parts of Central England have felt the same about this year, with flash storms, bringing a month’s rain in a morning, onto previously dry land.  Damage to crops is thought minimal, if only because they are so thin!  The current sunshine will help them ripen with good quality and support bushel weights.

Since September last year, the November 2020 feed wheat futures price has lifted from £140 per tonne to over £175, and is currently at about £163 per tonne.  Since September, production concerns have reduced the expected crop size to what most people now expect to be considerably less than 10 million tonnes, and probably nearer to 9 million.

November 2021 wheat price has hardly moved out of the £150 to £155 per tonne range since September.  Clearly, there is so little information about how much there will be in 2021 yet, and what the change in demand might be, that the market does not move far unless currencies shift it.

Looking ahead at the possible, or likely supply and demand figures for wheat this year, we find a most unusual situation.  We are likely to enter the 2020/21 crop marketing year with considerable carry-over stock level according to the AHDB; higher than we have had for 30 years.  This is convenient, as the harvest projection outlined above is 5 million tonnes, or a third, down on the average crop size.  It means the UK will still need to import approaching 4 million tonnes of wheat with zero exports to balance the books and finish with sufficient ‘pipeline’ stocks – the stocks that are required to keep the mills running between the end of the marketing year (June) and the harvest.  This is an import level also not seen in a generation.  Not only has the UK not had a crop this small in that period, but also, since the last small crop (of 11.5 million tonnes in 2001), the UK has increased its level of wheat processing and consumption by 2 million tonnes.

UK Wheat Balance Sheet – source AHDB & ABC

The barley supply and demand outlook is less extreme.  Whilst the data is not as easy to interpret (two crops, less certainty about spring drilled area for example), using the lowest yields for both crops for a decade, and the crop area figures used by The Andersons Centre, we end up with a crop of 6.3 to 6.4 million tonnes.  This is considerably less than last year (8 million) but similar to 2018.  The rains last week will have provided a necessary boost to the growing crops in the UK, especially the springs, and now most grains will have sufficient moisture to see them to harvest.

The area of oilseed rape harvested is likely to be less than 400,000 hectares (including springs), making it the smallest area since 2002.  With some shocking looking crops in the ground, it is possible the total crop tonnage will be less than it was then.  Demand is lower though, as the economics of biodiesel is not worth turning the factories on, and with people not eating out (where food is generally fattier), the demand for oils for cooking has also fallen.  The market for pulses at this time of year is very quiet.  The recent rains will have been very well received by the growing crops, especially the spring drilled ones.

Arable Roundup

Everything grain marketing is focused on new crop by this time of the year, even the remains of the old crop respond to new crop market fundamentals.  So prices are moving based on the reports of crop development and of rain or sun. Hence, the markets at this time of year fluctuate far more than the well-being of the developing crop in the ground.  This volatility is of less importance in the spring as farmer selling tends to slow, as has been the case this year too.  Sales are even slower than normal, as a result of farmers trying to assess what they might have to sell.  Inevitably, for many this will be less come September than usual.

The US Department of Agriculture (USDA) in its May bulletin released figures showing ample wheat stocks, sending wheat prices down.  But the growing conditions around the world are not great at the moment.  The Russian new crop is suffering more than the UK from dry conditions and the crop expectation there has been reduced several times by the local analysts.  Across the EU, similarly, crop prospects are being trimmed back by dry soils from the UK across the Northern European belt.  At the time of writing. the outlook remains warm and dry.  With the UK wheat crop almost inevitably less than 10 million tonnes, and possibly considerably less, the London wheat futures have been gradually rising.  This has also been supported by a weaker currency.

Maize demand is starting to rise again with the resumption of an ethanol market in USA.  The same is happening for oilseed rape in the European markets with biodiesel demand restarting again.  This, coupled with the anticipation of oil guzzling restaurants reopening soon in the UK and Europe has led to higher oilseed rape prices.  Coupled with a very low OSR stock level in Europe gave the market a £10 per tonne boost.

The same factor has been positive for malting barley; hints that physically distanced bars might be able to reopen soon have supported the malting sector.  Furthermore, the dry soil conditions have pushed down the yield expectations for the large area of spring barley, trimming the potential total crop size.  Again, this holds true for Europe going right across the Black Sea regions.  Rain is needed badly in the whole of Europe.

The pulse market has reached its high point, having risen to levels that don’t calculate to export to buying destinations.  Trading is still quiet as Ramadan continues, but is in its last week.  There might be some new crop business thereafter, but probably only when prices come down slightly.

The release of the UK Government’s import tariff schedule this month explains the charges exporters will have to pay to send grain to the UK after the departure of the UK from the EU-Brexit Transition Period on 1 January 2021.  The tariffs  to import wheat and barley from third countries will be £79 per tonne and £77 per tonne respectively.  We normally export these crops but this year this may not be the case due to the low crop size.  Therefore these tariffs might have a market effect.  However, the import tariff for maize will be zero, suggesting maize can flood in from France and the Americas easily.  Thus maize is likely to be the feed-grain import of choice.  Furthermore, the high specification wheat will also not have a high tariff, suggesting the milling wheat demand will be sufficiently met.

Grain Crop Commentary

Old Crop

Technical changes:  Towards the end of the wheat marketing season, the impact of the fundamentals of grain supply and demand change, with some factors taking on greater impact, others less.  Attention then turns to new crop, and the fundamentals affecting it.  The increasing amount of information over the emerging new crop overtakes the dwindling and ageing information about the remaining old crop, of which little remains uncommitted in barns.  This increases the impact from new crop fundamentals.  Secondly, the volume of new crop wheat being traded, which is rising all the time surpasses the declining volumes traded of old crop.  This accelerates when the last old crop futures market expires as is the case now as we enter May.  Market fluidity also declines when futures markets are not available.  The technicalities of closing contracts held becomes a physical issue either having to physically deliver them or close the position.

Fundamental changes:  Grazing animals have gone to pasture, so feed grain requirements have fallen sharply as is often the case in spring.

Demand for bread rocketed in the first days of lockdown, fuelled largely by thoughtless panic-buying.  It has settled at about 115% of normal demand which millers and bakers are managing to meet.  Bagged flour was considered a secondary priority as it is less critical to consumers and slower to reach them, more wasteful than bakers baking bread, more expensive but less profitable to the supply chain, and the paper bags were in very short supply.  It is now coming back on-stream thanks to good communications throughout the supply chains.  Nabim published a map of available flour outlets.

Poultry consumption has risen, and produces have adjusted their feeding regimes to fit in with their new supply chain requirements as demand has varied (you can finish a broiler quicker or slower by changing diets).  Yet, feed wheat demand for ethanol production has stopped.

Russia and Ukraine have imposed grain export quotas, meaning prices may rise in May as these limits are hit.  The overall conclusion is that milling wheat is in demand but feed wheat less so.

In the barley market, maltsters are closing sites because demand for malt has collapsed as beer consumption at home and alone is lower than in pubs with mates.  Those brewers who have a market to sell to, do not have bottles to put beer in; barrels are not currently required.

The demand for oilseed has fallen as we eat less greasy take-aways and pizzas.  Any requirement for OSR for biodiesel has totally dried up.  Demand from the supermarkets is not being fully met either though, suggesting some issues with supply.  OPEC, the oil cartel has reduced daily crude oil production but only by 9.5 million barrels as day, when consumption has collapsed by 35 million. Nobody needs oil if we’re not moving about.

New Crop

Two months ago, few would have believed that many growers in the UK now require rain.  Some heavy soils are still coping well with large reserves in sub-soils but emerging spring crops require moisture at the soil’s surface and other lighter soils have become dry deeper down.  The dry area extends across Northern Europe to Ukraine.

New crop wheat prices are within a couple of Pounds of contact highs, set in March.  The reasons are a small crop in the ground, a wet winter and dry current conditions and some analyst’s comments suggesting the elevated bread consumption levels to continue post harvest.

The dry spell has enabled spring barley to be drilled in almost every spare corner of Britain.  Few fallow fields are now evident.  The potentially huge malting barley crop slowly grows, but no exports sales are being booked.  Other countries nearby also have lots of spring barley, and no beer drinkers.  The German Octoberfest, which attracts up to 6 million beer guzzlers has been cancelled this year. Malting quality barley will go as feed barley this year, clearly depressing the feed barley price too. The spread between barley and wheat could be considerable this autumn.

The price of beans has been falling as we enter Ramadan and the demand from our export homes slows.  A large spring bean crop is in need of a good watering.

Crop Area Projection Updates

At last the weather has turned out nice.  The rain has stopped, at least for now, but certainly for long enough for many farmers from Oxfordshire to Newcastle to complete (and in some cases even start) their drilling.  At the time of writing, many farmers are busily trying to get as much of their spring seed in the ground as possible.  Seed merchants are reporting low availability of late drilled seeds like maize and spring beans as a result of high demand.

Last month we published an article commenting on the second Early Bird survey that we support AHDB with.  This is the survey that assesses what has been planted and what growers intend to plant in the UK.  It included planting intentions which, at the time, left opportunity for winter wheat to be planted.  The rain did not stop in time for winter crops to be drilled and also may have curbed the spring drilling window for some growers leaving, we believe, a high chance of elevated fallow land and grass this year compared with normal. Our updated projections on crop areas look as follows:

If this projection is correct, it would leave potentially the lowest wheat area planted in the UK since 1978/79, and the highest spring barley area since 1987/88.  Some projections expect spring barley to exceed 1 million hectares but we are not convinced there is enough time for that to occur.  Oilseed rape area might end up being the lowest since 1988/89.  Even so, it still might be the highest we see again because the difficulties of growing the crop this year have been only partly because of the rain, and partly because of the flea beetle.  The fallow land area we have suggested here would be the highest level since set aside was mandatory back in 2007.  For 2020 autumn drilling and the 2021 harvest, we would expect a high proportion of farmers very keen to capitalise on the first wheat opportunity, possibly planting a little earlier than this year too.  Hold tight for a big wheat crop next year.

Crop Market Summary

The demand for bread and therefore milling wheat is high.  People eat chicken and eggs at home more than beef and lamb so the demand for feed wheat has also increased.  Old crop prices have benefited from the surge in short term demand, which farmers have benefited by selling into.  The fall of Sterling has given grain prices a considerable boost (see earlier article), and also made the UK wheat price competitive for exports, so new shipments have been sold into continental destinations this month.  New crop feed wheat hit contract highs.  Globally, wheat has also risen on news of the Chinese buying US wheat, and a considerable 240,000 tonnes in two shipments.  This is the first such deal in three years.

The consumption of alcohol (especially beer) out of the house has disappeared and people drink less beer at home (and alone) than when they are out.  And this is global.  Hence the malting barley premium is declining sharply.  The combinable crop price matrix is shifting because of (presumably) short term, sudden, changes in the way that people eat.

Crude oil has fallen by 60% to its lowest level since 2003 as the demand for travel falls.  The demand for biofuel has therefore disappeared too.  This has a greater impact on the vegetable oil market through bio-diesel than the ethanol market into cereals.  This has played a bearish factor in the oilseed rape market, meaning prices have not rallied on the fall in Sterling as much as the grains have done.

The pulse market has been relatively light, with reduced international business, partly because of the virus, but more because of the freshly harvested Australian bean crop that dominates business into North Africa at this time of year. Usually by Easter the UK bean market is more or less finished.

Grain merchants and other crop production businesses remain open as the food supply industry is classed as an essential business.

Planting Update

This is a short article this month.  A few bits and pieces of drilling have apparently been able to take place, on the slightly lighter and faster draining land, but really very little; probably not enough to match the amount of autumn drilled barley, oilseed rape and even wheat that, this month, has been officially written off by the farmer and his agronomist.

Some commentators in regions less affected by the heavy rain and the saturated soils are confused by the noise, expecting the flooded fields to be confined to small corners of fields, floodplains or pony paddocks.  There are consequently still people projecting wheat crops comfortably over 13 million tonnes and others sticking to sub-10 million.  Currently, our wheat area projection sits at about 1.6 million hectares, of which about 1.1 is probably planted.  This would be at about the level of the 2013 crop and before that not seen since 1981.  With a lower than usual yield, this may give a 11.5 to 12 million tonne crop.

Some seed merchants have reported fast sales of all spring crops (possibly with the exception of oats), and for some crops, pulses in particular, sales have been stellar.  Indeed, it is possible that some farms have overbought, with a view to either cancel their spring seed order or keep their winter seed through until next autumn.  It has been a good year for seed merchants but next year might not be.

Combinable Crop Markets

This time last year, we showed the chart below with the faded bars.  It demonstrated wheat was priced with a typical carry as it goes through the year; with the monthly rise in value the longer you keep it to account for the costs of storage. It also showed the usual drops in value each year when the new crop physically comes into the marketplace.

The dark blue bars show this year’s equivalent set of futures prices, and how there is a full carry from now all the way through to May 2021.  In other words there is no drop in price when the flush of new crop becomes available this summer.  It demonstrates that the market understands that there might not be much harvest to account for the flush.  Only when we get to the summer of next year, do we see wheat futures prices start to fall.

UK Wheat Futures Price – source AHDB

Old crop wheat is currently cheaper than new crop, but is still dearer than equivalent continental values meaning they are too expensive to secure exports to EU destinations.  It also suggests that, if the supply situation changes in coming weeks, the market might fall considerably.  This may be prompted if there are enough dry conditions for the many farmers still sitting on their winter wheat seed, some varieties of which could still be planted well into February, to get some more drillings done.  Globally, wheat prices are strong, sitting at levels not seen at all in 2019.  Some with a crop already safely growing, will see this as an opportunity to sell some new crop forward now.

Higher wheat prices have boosted feed barley values this month too.  This has been coupled with some useful exports, particularly from old crop.  New crop barley could be a big one this year, with large volumes of spring barley seed committed or delivered.  The markets (both wheat and barley) will be sensitive to both the ongoing weather throughout the spring and also the updates on drilling.  We do not expect a million hectares of spring barley to be drilled, but it largely depends on how the weather turns out in coming weeks.  Wherever possible, many growers are still very focussed on getting their wheat in the ground.  It is difficult selling even the feed base forward this year as currently, many farmers are not even sure what they will harvest.

It is emerging that large crops of soybean from the southern Hemisphere, Brazil in particular, are expected this coming year, and other regions such as Ukraine are looking to grow more oilseed rape. This, coupled with trade talks between the Chinese and Americans, has seen oilseed rape lose some value.

Old crop pulses have been rising in price this month, partly because of demand for the protein, but also, it is thought, as growers hold tonnages back for potentially drilling.  Winter beans can be drilled relatively late, and of course, spring beans might also play an important role in the 2020 rotation.  Many seed merchants have sold out of bean seed and potentially, we could have the largest pulse cropped area the UK has recorded for many years.  It takes a long time to multiply beans up (compared with cereals and especially oilseed rape), hence the high proportion of home saved seed.

Arable Markets

Overall Comment

Whilst in some counties over the last week the weather has been harsh, over the country it appears overall, December has so far been considerably ‘less wet’ than the previous 3 months. But with soils already saturated it does not take much to keep the land impassable. Now the crops are mostly dormant meaning nothing is transpiring the water away, and minimal evaporation is taking place either as temperatures are too low with high humidity. In other words, a millimetre of rain here and there has been topping up the already sodden soils. Cold dry frosts have also been scarce this autumn, meaning that grain conditioning in store has been difficult. Some samples, particularly of barley have been losing premiums because of infestations. Managing grain quality will become increasingly difficult this winter.

Wheat

Nevertheless, the AHDB has reported they consider the winter wheat planted area has now risen to about 60 of intended plantings, suggesting progress of about 5% since the last of these bulletins was published. Clearly, at this rate, and if weather conditions do not change, there will still be about 30% of the planned winter wheat area undrilled at the end of February; about the end of the window available for drilling most of the varieties currently sat in bags in farm barns around the country.

UK grain traders have had a challenging time this season, unable to book grain exports past the official Brexit dates. For a year with a large crop to sell, this has affected market prices. Perhaps some clarity in the New Year will facilitate the rest of the marketing campaign.

Barley

Old crop markets are asleep already in preparation for the Christmas break. Its not even planted yet, but the prices for the 2020 crop have not been great, with expectations of very large UK and EU crops. Few buyers are buying much new crop yet, as prices are so bearish. Certainty regarding the EU departure will support the buying confidence.  Seed traders have been gathering what spring barley tonnages they can and, between them, it appears there is enough available for in excess of a million hectares to go in the ground, as soon as conditions allow. This would be the highest spring barley crop since 1988, and the largest total barley crop since 1990; that is, assuming it is dry enough to drill by then.

Oilseed Rape

Global demand for vegetable oils is strong. The Chinese still demand vast tonnages of soybeans, despite millions of its pigs, who et the meal) have been slaughtered because of African Swine Fever. This might shift the balance of demand between oil and meal which would favour crops like oilseed rape that have a higher oil content. Certainly, oilseed rape has done quite well over the last month, regardless of the overall movements of sterling.

Pulses

Pulses trade quickly in the first half of a marketing year, then slow down for the second half. The export market for pulses for this season is quickly reaching that point, partly as the Australian crop will be competing strongly come January, and also because of customs clearance deadlines in North Africa.

 

 

October Arable Commentary

This time last year, we discussed how well the planted crops had established and were growing.  This year, over much of the UK, there is little to talk about as many farms have done very little drilling at all.  Official data reports that England averaged 107.5 mm rainfall in September.  This reading is far lower than that recorded in some people’s rain gauges; the topic of conversation that has trumped the crop yield discussion in pubs in all arable parts of the country of late.  However, the last time the official September rainfall eclipsed 100mm was in 2000.  That year was even wetter therefore than infamous 2012 year, which, whilst it had been wet on and off since April, and became very wet in October to December, had a dryish September.  Notably, the average September rainfall across all of England is 64mm, just over half of what the country has received this season.  Wales has just had its wettest September since 1981 but Scotland had the driest September in four years this year.  October seems to have been similar.

Drilling therefore is considerably behind schedule, with several people cancelling winter varieties in favour of either fallowing or a determination to drill in the spring.  Others have adopted a wait-and-see approach with late-planted winter wheats still an option.  Any rotation changes driven by the weather will add to existing trends.  This is particularly the case with oilseed rape where the fall in planted area is expected to continue for harvest 2020.  The 2019 crop showed the smallest crop output since 2004, and the smallest planted oilseed rape area since 2002 (at which point there was industrial oilseed rape on set-aside land).

UK wheat prices have also remained uninspiring this month.  Since the UK nearby wheat futures contract slipped below the Chicago wheat price (Soft Red Winter) in June, it has shown no inclination to swap back, instead following a relatively close £15 per tonne premium over Chicago number 2 maize. Number 2 maize is the cheapest, commodity-level maize that is used for animal feed, starch production and other industrial uses, so we would expect our wheat to be worth a bit more than that!

Malting barley prices have risen slightly this month, but looking forward, if this year is going to be anything like other very wet autumns, we could have high areas of spring barley planted, meaning a thumping big pile of malting barley so very small premiums next harvest.  Growers should consider their marketing options such as minimum prices, contracts and so on.

Whenever Sterling has risen in the month, we have seen pulse prices soften as would be expected.  It continues to remind us that the marginal tonne of a commodity is the one that sets the local prices.  We have had three years of higher grain prices because of a weak currency, but if we see a Brexit Deal happen this might change back.