Tag: oilseed rape

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 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.

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.

Combinable Crop Situation

Oilseed rape production in the EU has not been so low since the EU the EU expanded to 27  Member States.  The introduction of Croatia in 2013 had minimal impact on the OSR supply and demand tables, but Bulgaria and particularly Romania, which joined in 2007, account for about as much production as the UK does.  The crop this year is thought (for example by Coceral) to be about 12% to 13% lower than last year, and as much as 29% lower than the highest production year of 2014.  In fact, since then, four out of the five years have incurred declines in OSR crop size.

This means that this year, the EU (including the UK in this description) will be importing oilseed rape from elsewhere.  Some have suggested 6 million tonnes of will be required.  At the same time, regulations on importing biodiesel produced from palm oil is becoming more expensive with duties rising.  Additionally, the rise of crude oil prices following the attacks on Saudi refineries have also led to rises in vegetable oil markets.  These factors have come together to support oilseed rape prices in recent weeks on European markets.

In the meantime, Sterling has gaining strength by 5% against the Euro in the light of rising expectations of a Brexit deal since early August.  This has wiped out any gains in the UK OSR markets. This (relatively modest) currency shift demonstrates just how dominant the value of the Pound is on agricultural prices.  We have no influence on the value of Sterling and minimal ability to predict accurately.

Taking this logic a little further, it follows that as soon as a decision on the type of Brexit is reached, whether Deal, No Deal or even no-Brexit, the impact on the value of our currency will almost inevitably be instant and dramatic; probably far more than 5% in either direction, depending on outcome.  In the short term, the profitability of cereal farming post Brexit-decision will be led by currency shifts.  Any other factors might be dwarfed by this one thing.

Exporters have been working round the clock to export as much wheat and barley from the UK’s exportable surplus since harvest.  Their deadline is 31st October as they do not know what the tariff rates will be after then.  Conveniently, there has been considerable buying interest from many of the large cereal buyers, mainly in North Africa including Algeria, Tunisia and Egypt.  These countries don’t buy from the UK, but they have occupied other exporters’ minds whilst UK traders have focused on our traditional Iberian markets.  This has helped UK grain prices to hold up, in the face of stronger Pound (see above).  Yet the EU wheat crop is considerably higher than last year and the US cereals prices (especially maize) have been falling this month.  The urgency of exporters to get stocks off farms and onto boats has supported prices.

Bean prices are also holding up well.  The urgency to export the (considerable) surplus is smaller, both as much of the bean export goes outside the EU anyway, and also as the tariff rate to the EU is far smaller.  In any case, the trade has struggled this year to find much that is of food grade, most ending up in feed bins.

Arable Roundup

UK Harvest

Until the last week of August, harvest was a headache for many farmers.  Many areas had four inches of rain in June, another four in July and about 2.5 in August, meaning the ground was soft.  Intermittent showers meant progress was slow.  However, the last few days have been all-systems go, facilitating a catch-up.  The warm, dry, weather has also meant producers have been far less dependent on the drier than at the start of the harvest.

With a majority of cereals now cut, yields have been good to excellent overall.  Winter barley has yielded higher than average with plenty of our clients reporting 8 to 8.5 tonnes per hectare (3.25-3.5t per acre).  Wheat has also been very good.  Strong loam soils that have been cared for with ample organic matter over the years and heavy land have achieved in excess of 11 tonnes per hectare (4½ t per acre) – and not just in isolated cases.  Bushel weights of 80+ have been commonplace too, but Hagberg readings have not been as good following the intermittent rain-shine weather.  Lighter soils and those with less organic matter have been affected by the dry weather in May and early June.  However, yields are still good so plenty of light land farmers are recording above average results.  Oats are still in the field and losing colour so possibly less attractive for milling.

OSR has been variable because a fair area had larvae feeding on plants in spring which led to poor podding in crops.  That led to yields being moderate at best, many reporting around the 3-3.3 tonnes per Ha (1.2-1.3t per acre).

Beans have been at high risk of bleaching following the showery weather of the previous few weeks.  Beans discolour and therefore lose value easily and quickly.  Those that have managed to harvest beetle-free and coloured beans could expect a £25 to £30 premium over feed beans but the large amount of feed means this base price is not great.

European Harvest

Cereals harvests are completed in most part of the EU, including France and further South.  They are near completion in Northern Germany and Poland, and well underway in Eire, Denmark, Scandinavia and Baltic States.  Again, yields have been bumper.  For soft wheat, Strategie Grains, an analyst company forecast European production at 143 Mt, a considerable 12.3% increase on last year.  The wheat area is up by ¾ million hectares and yields are also above the 5-year average.

In France, the wheat crop will be high at 38 to 40 million tonnes depending on whom you ask.  Only one Department has recorded lower than average yields and proteins are high.  The German and Polish crops are also good.  Even outside the EU, the Ukrainians have also had high yields, and have already started their export campaign in earnest, with higher sales than last year and a target of 21 million tonnes, which is 5.5 million more than last year.

The EU is likely to have cut over 60 million tonnes of barley this year, mostly winters.  France will have seen a rise in springs because of oilseed rape problems.

Prices

This means there will be a large EU crop this year and nearby neighbours also providing surpluses. Achieving exports from the UK might prove tricky.  This explains why futures prices have hit contract lows in all positions in the last couple of weeks; we have lots to sell, everybody else who exports does too and those who import also have more grain than usual.  It is clear what this might mean to prices, especially when the possibility of having tariffs looms over the UK crops.  It is perhaps therefore no surprise that wheat values have fallen by £20 since June and £10 per tonne solely in August.

The weakening Pound has done little to retain any kind of value in commodities, in fact, comparing the UK Nearby wheat futures contract prices with the comparable French, a gap has opened up of about £10 per tonne more than usual. This might be the Brexit effect.

Arable Market Thoughts

It never rains, it always pours!  By early June, some were concerned about the dry soil conditions, by the end, the concern was flooding.  Most of the crops that had been flattened have picked up, but not all, increasing the risks of Fusarium.  Combinable crops now require sunshine to help them ripen with good quality and bushel weights.

The other thing that has fallen over this month (which we had been warning would happen) is the premium that the old crop wheat carried over new crop.  Sooner or later the two crop prices have to merge, and they did this decisively in June.  In fact old crop long-holders will be feeling frustrated by the chart clearly showing July 2019 futures values in January of £180 now being worth £145.  Also, new crop wheat prices have taken a sharp turn upwards, now clearly ahead of old crop.  This will encourage any buyers to take short term cover and close the gap.  Farmer sellers with adequate storage might be tempted to carry the grain over if it is in satisfactory condition.

Globally, the wheat crop is overall healthy and abundant, with expectations from the International Grains Council that it will outstrip consumption to leave slightly higher stocks this coming season.  This has helped explain the price falls in the market.  Maize though, the main combinable crop in the world, is thought abundant but not likely to match annual demand, so stock levels are expected (by the IGC) to decline again this year.  This will be the third decline since 2016/17 from 363 to 284 million tonnes; a substantial fall.

Soybean stocks are also thought likely to return a small decline in physical stock level after the 2019/20 season, although only by 1 million tonnes.  This is a tiny change after such a sharp rise in stock from 25 million tonnes to the current 53 million in only six years.  The question of how much oilseed rape will be grown in the UK is concerning many; whilst we have reported the poor OSR conditions on many farms this year, we have not pointed out that other arable farmers are quietly very happy with the condition of theirs. Some has been grubbed and replaced, other fields are looking excellent.

Bean crops are largely looking good throughout the country, and with new crop reaching good prices, perhaps now is the time to book some in.  Currently, we would expect bean crops to outperform their overall dismal performance from last year.

Grain Market Commentary

Everything grain marketing is focused on new crop by this time of the year, even the remains of the old crop.  However, this year there is a problem.  Without knowledge of a Brexit outcome, exporters have no idea what they can afford to pay, not knowing whether there will be any kind of trade deal meaning a transition to Brexit and therefore whether they will have trade tariffs to pay to send grain to the EU-27 next year or not.  Furthermore, importers are in the same position.  Trades for the new crop are just not taking place, at least not until after Halloween.  A likely wheat surplus for the UK this coming year is compounding the problem.

The domestic marketplace is far less impacted by Brexit and theoretically not at all, however, the traded tonnes are those that set domestic prices.  Buyers at the grain processing and milling firms are dealing with this mainly by carrying-on as normal – all their competitors are in the same position, and unless any take any speculative positions, they will all experience the same price shifts simultaneously.

The weakening of Sterling as a result of political uncertainty has given a small boost to grain prices.  Barley prices have lifted in recent days as well as wheat, albeit by less than the rise of wheat prices.  This might seem a worse outcome for barley, but the potential barley surplus and uncertainty over the export of the crop from November might actually mean this is a good opportunity to sell.

The weak Pound has boosted the oilseed rape price in Sterling terms during May.  Oilseed rape does not have a trade tariff on it, so the complications from Brexit are less significant.  However, the US government has announced substantial support in terms of additional grants for soybean growers in the USA, in a bid to compensate them for the US-Chino trade spat that they have become embroiled in.  This does not seem to have had a major impact on EU oilseeds as yet.  One might assume a high global oilseed crop this year, considering the Brazilians have also been producing lots of soybeans to steal the US business to China; it all has to go somewhere.

Beans do have trade tariffs, but only small ones.  The new crop is in very good condition at the moment, a rather different situation to their final condition last harvest.  Again, it is new crop that the markets are focused on, and currently, other proteins such as rape meal and soybeans are comparatively cheaper than pulses so their incorporation into feed rations is likely to be relatively small.

In the field, growing crops are looking good throughout the UK, that is with the exception of oilseed rape.  Grains and pulses are growing well, and reports of serious disease issues are rare.

Cabbage Stem Flea Beetle

Many will have noticed there are considerably fewer bright yellow fields than last year, and some a much paler shade of yellow than their owners will have wanted.  Evidence suggests that in the UK a slightly lower amount of oilseed rape was planted last autumn than previous the year.  A considerable proportion did not have a good start, possibly in part as a result of the very dry soil conditions at the time, but also the concerns of Cabbage Stem Flea Beetle (CSFB).  This a meant an unknown quantity, but perhaps 8% of the national crop, written off before winter.

That which made it to the spring, is also in rather poor condition now, with another 5-10% being written off largely in the central and Western parts of England.  This will either be replaced with another crop or fallowed, or in some cases, left in poor condition, its owner resigned to the fact it will probably generate a poor yield.  It is concerning that reports are emerging that CSFB is having a damaging effect on the emerging sugar-beet crop too.  It is too early to speculate on yield impact, but we will continue to monitor this situation.

Ironically, reports from Lincolnshire suggest some bee-keepers are concerned there is insufficient OSR to supply enough nectar to produce honey from their hives.  Perhaps the loss of Neonicotinoids has had adverse impacts even on the insects that the ban was designed to protect.

What the impact of CSFB on OSR in the British farmer’s rotation in future might be is unclear, but many growers and agronomists have suggested their rotations and crop recommendations will not include OSR for at least three years.  The OSR area is in long-term decline; its area topped out in 2012 and has fallen every year since then apart from once.  In 2019 we could harvest the lowest rape area since 2004, and possibly the smallest crop since then too.