Tag: oilseed rape

Arable Market Commentary

New Crop

In terms of growing conditions, little could be more extreme than the temperatures recorded this month compared to last February.  In the February 2018 bulletin we cited the ‘Beast from the East’ delaying drilling.  This year, spring drilling is well ahead of normal with almost 25% of spring barley already in the ground.  A word of warning though; early drilled spring crops are not always the highest yielding, and there is time yet for very cold weather.  We reserve any judgement on harvest yield potential.

The USDA makes its first prediction of US wheat area every February, this year suggesting decreased plantings, in a falling area trend.  Indeed, if correct, it would be smallest US wheat area for 110 years.  This identifies the changing demands for grains, shifting to maize, for pig and poultry feed, biofuels and indeed even human food.

The International Grains Council’s first expectations of the forthcoming 2019/20 year are for a rise in global wheat production, of about 1%, a similar magnitude to the annual rise in demand so no substantial changes in year-end stocks.  This seems to contradict the findings of the USDA, but theirs, of course is USA only.  An increase in coarse grain harvests are also foreseen by the IGC, with maize and barley both up about 1%.  This is in line with the rise in demand so is no more than trend demand.  Much of the coarse grain increases are predicted to occur in the USA and China; the two biggest grain producers, so a small proportional change in these countries will be noticed.  However, there are also rumours that China is considering rolling-out a major expansion to its bioethanol inclusion policy, which would have a considerable impact on feed grain demand in the coming few harvests.

Of course, much of these crops that have been forecast have not yet even been drilled; all maize, and soybeans are spring crops and Canadian, Russian and half of the US wheat is also spring varieties.  Therefore, these projections are statistical analyses coupled with a smattering of planting intention data, not hard evidence of plants sprouting from the ground yet.

Old Crop

In the EU wheat market, a gradual decline in values this month (making European grain cheap compared with American grain) led to Europe and Russia winning some large export contracts to Saudi Arabia, boosting the export figures and balancing the supply and demand books.

The demand for ruminant feed is currently slipping away as cattle venture into the fields and sheep have grass to eat; leaving a lack of demand for feed barley, which has fallen to a £25 per tonne discount beneath feed wheat (which is primarily fed to housed chickens).  Barley is being included at maximum rates in rations now for this reason.

Oilseed rape prices have taken a tumble, based on the arrival of a large vessel loaded with Canadian canola, and the reduction of the rapeseed crush volumes in the UK.  This time of year is often difficult for European rapeseed (and pulses) as harvests from the Southern Hemisphere become available and start putting pressure in markets.  The Old Crop pulse market is increasingly thin and new opportunities will become rarer now, despite a healthy premium over feed wheat for pulses.

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.

October Crops Update

Growing crops are generally in good condition throughout most of the UK, having had a moderately good start to the season.  Recent rains have been welcomed and will help establishment across much of central England before winter dormancy sets in.  In Scotland, winter crops are looking about as well as they have in recent memory, sowing conditions have generally been excellent and recent weeks of warmth and sunshine have allowed everything to establish and grow on well, with any autumn herbicides and fertiliser applications required being easy to achieve.

Cereal prices have been lacklustre at best, bearish at worst this month with wheat falling more than barley. Domestic values have suffered from the UK wheat processing closures (see other article).  Globally, prices took a hit towards the end of October when the International Grains Council updated its grain supply and demand figures, adding 12 million tonnes to global wheat production, but only 6 million to consumption. Stock levels are now seen 12 million tonnes higher than thought in September, making overall year-end stock levels only slightly lower than last year.  Black Sea supply has remained strong, with high wheat and coarse grain exports, pressurising the entire EU feed grain marketplace.

Despite that, the UK feed barley market has been underpinned with export deals beyond the EU border. This not only bodes well for post-EU trading prospects but also changes the dynamics of UK trade.  More distant exports tend to be larger volumes and therefore bigger vessels requiring deeper ports, most of which are in the south of England, conveniently, closer to the South Mediterranean destinations.  Also, most surplus barley is in the south, far from the northern maltings.  Demand for malting barley samples from UK maltsters has slowed pre-Christmas now.

Oilseed rape has been a concern in much of Central and Eastern England because of a high prevalence of flea beetle.  Currently, we are working on a planted area the same as last year, but with 5-7% of the crop being written off.  It appears this has been caused by the dry soil conditions, and warmer than usual temperatures this autumn.  Temperatures have fallen at the end of the month and rain has also been persistent, so this might help curb the problems.  Yet many parts of Northern Europe, including France, Germany and Poland have also reported lower germination levels because of the dry warm weather conditions.  OSR prices are holding relatively steady in the light of the crop establishment issues.

 

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.