Tag: wheat

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.

Arable Markets

A week is a long time in politics, and given their intertwined nature at present, so too in grain markets.  As the war in Ukraine enters into its second month, the impact on grain and oilseed markets has been considerable.  This is not surprising when we consider the reliance the world has on both Ukraine and Russia for grain and oilseed supplies.

The Food and Agriculture Organisation (FAO) of the United Nations held an extraordinary general meeting earlier in March, to discuss the challenge of the war in Ukraine.  The report from the meeting highlights 26 countries which rely on Russia and the Ukraine for more than 50% of their wheat imports.  Some of those nations will be relatively small importers.  However, it is worth noting Egypt, which imports more than 15 million tonnes of wheat annually.  Historically, 70% of Egypt’s wheat imports have been sourced from the Black Sea.  Whilst we can expect markets to be volatile long after the end of the war, much will depend on how the nations who rely so heavily on Russia align themselves politically going forward.

Farmgate grain prices have risen considerably over the course of the last month.  Nearby farmgate feed wheat was worth £292.90 per tonne on 18th March, up £69.40 per tonne from 25th February.  The value of farmgate prices has been driven by futures market volatility.  This is, in turn, making markets challenging to price.  Milling wheat prices have also seen increases, although the premiums over feed wheat have remained relatively stable.  Feed barley values have also increased considerably, following the direction of wheat markets.  Farmgate feed barley increased £67.90 per tonne from 25th February, up to £277.80 per tonne on 18th March.

Outside of the conflict in Ukraine, the grain market would likely be seeing support anyway.  Dry conditions over winter in the EU and US, will cause some concern on wheat markets.  Drought conditions are also seen in North Africa, if this persists, we can expect increased import demand globally.

Oilseeds prices have also risen considerably in recent weeks. Paris rapeseed futures (May-22) traded at more than €1,000 per tonne on 23rd March.  As with grains, there is a global reliance on the Black Sea for rapeseed and sunflower oil.  Ex-farm UK oilseed rape prices were quoted at £742.50 per tonne on 18th March.

Pulse prices have also gained over the last month.  However, the gain in the value of pulses has been limited compared to that in grains and oilseeds.

Grain Market Roundup

As the conflict in Ukraine continues, the value of commodities has risen considerably. On Monday 7th March UK feed wheat futures (May-22) closed at £303 per tonne, a rise of almost £68 from 23rd February, the day before the invasion began. While prices have risen, daily movements have been volatile. Russia and Ukraine account for more than 28% of world wheat exports, as such developments in the conflict will have large ramifications for prices.

Despite the large rises in output prices as a result of the conflict, input prices are equally inflated. Russia is a key producer of fertiliser and exporter of fuels. The price of fuel is likely to stay inflated, with the UK and US governments announcing, on 8th March, their intention to ban Russian oil imports. The UK ban will be phased, Russian supplies of fossil fuels account for 8% of UK imports.

 

Outside of global politics, the International Grains Council (IGC) lowered its estimate of global grain stocks for the 2021/22 (current) season.  This was due to cuts in Southern Hemisphere maize production forecasts where dry weather is impacting on crop expectations.  This is also likely to be a continued driver of grain price rises.

Despite the factors globally which point to further grain price rises, we also need to consider the new crop (2022/23) when looking at the direction of grain prices.  The IGC has tentatively forecast an increase in grain stocks; as we move nearer to the new crop market the expected availability of the 2022/23 crop will have an increasing influence over prices. On 9th March the USDA is set to update its world supply and demand estimates, these will be watched closely.

In the UK, milling wheat premiums remain high relative to recent seasons.  Milling wheat premiums will be watched closely as we move towards spring in light of the high cost of nitrogen.  Feed barley prices have followed the same path as wheat prices, tracking lower through February before recovering.

Ex-farm oilseed rape prices have fallen back from their December high of £627 per tonne.  Rapeseed prices have responded to the incredibly tight UK, European and Global oilseed rape supply and demand.  However, prospects for the new crop are for improved supplies.  This will lead to lower prices than we have seen this year.  Of course, there is some time before the rapeseed harvest and the fundamentals still have time to change.  Soyabeans also need watching for the direction of rapeseed.  The dry weather in South America has supported soyabean prices and tightened the supply and demand outlook. The United Nations Food and Agriculture Organisation cut its estimates of South American soyabean production by 13.5 million tonnes (3.7%), earlier in March. A tightening of global vegetable oil and oilseed markets will lead to price rises.

Pulse prices remain flat through January and February, moving by just £1 per tonne across the last month.

Grain Market Roundup

Over the last month, the prices of UK wheat and barley have fallen.  This has been driven by an improved global supply and demand picture for wheat and a stronger Sterling.

Global Market Drivers

The USDA published its latest supply and demand figures early in January.  The report showed improved global stocks of wheat, including amongst the top exporters.  The picture for maize tightened globally, with forecasts of Brazilian production falling by three million tonnes, to 115 million tonnes.  However, the combined production of maize in Brazil and Argentina was only 0.76 million tonnes below trade estimates.

South American production of maize is still something to watch closely for price direction.  Rainfall has improved crop prospects lately, but Brazil and Argentina are forecast to experience drier conditions over the next few months which could hamper production, tightening global markets.

In the short-term global politics also need watching closely.  Tensions between Russia and Ukraine, and in Kazakhstan, have increased global wheat futures in January.  The three countries account for about a third of global wheat exports.  Any escalation or de-escalation of tension will impact prices.

As we move forward, grain prices are increasingly going to be driven by the prospects for next season.  The International Grains Council is forecasting that global wheat production will increase in 2022/23.  Stocks are forecast to stay relatively unchanged.

Domestic Markets

UK spot ex-farm feed wheat prices fell from £219.10 per tonne on 17th December 2021, to £213.60 per tonne on 14th January 2022.  As well as the global factors outlined above, the fall in prices was amplified by a 1.7% increase in Sterling against the Euro, over the same period.  Milling wheat premiums remain historically strong but have fallen back recently.

UK ex-farm barley prices also moved lower across the month.  The barley market is closely tracking wheat this season, with supply and demand in both markets tight.  Feed barley was quoted at £203.40 per tonne on 14th January, down £5 per tonne from 17th December.

Oats have moved against other grains over the past month.  The high price of other grains has increased the inclusion of oats in compound feed rations (to November) according to AHDB figures.  As a result, oats have closed the gap slightly to other grains, but remain at a significant discount to barley.

Spot ex-farm feed bean prices have been flat through January, at £246 per tonne.  However, reports suggest that Australia has sent large shipments to Egypt which led to price falls on increased competition.

Rapeseed prices surged again into the New Year.  Demand for rapeseed oil in the EU remained strong despite high prices.  Ex-farm rapeseed prices (spot) are now quoted at £613.20 per tonne. There is a significant discount into new crop, owing to better new crop prospects.

Arable Prices Fall

Prices for UK arable crops have fallen lately, pressured by global supply and demand.  On 9th December, the USDA released its latest supply and demand estimates.  The estimates increased the stock picture for both wheat and coarse grains, leaving the global market looking better supplied than a month ago.

A month ago, the slow progress in Australia due to recent rains had caused delays to harvest and exports, increasing prices.  However, harvest progress has improved with drier weather, and while exports will still take time to catch up, prices have fallen in response.  Beyond the improved situation in Australia, the next key event for grain markets will be South American maize production.  The crop is expected to be big, adding to the fall in prices, but with an active La Niña (which brings dry weather in South America), the crop reports need watching closely.

Domestically, we are seeing the price effects of global supply and demand.  The price of UK wheat while initially moving up through early December, has now fallen.  New crop wheat futures (November 2022), closed on 16th December 2021, at £195.65 per tonne.  Whilst down from the highs we’ve seen of late, this still represents good value in historic terms, and is mitigating some of the increase in input costs.

Ex-farm value, published by AHDB, lag the futures market, and as such, continue to show strength in the most recent publication (price to 9 December).  However, they do show that milling wheat premiums have remained strong.  In the week ending 9th December, ex-farm milling wheat was over £50 per tonne more than feed wheat.

Barley prices in the UK are also high, in historic terms.  The barley market is tight this year in the UK. Through the early part of the season barley remained a popular choice in animal feed rations.  This has narrowed the gap between wheat and barley.

Oilseed prices have also fallen over the last month. Domestic oilseed rape prices for old and new crop delivery have followed the direction of Paris rapeseed futures.  Oilseed rape (and rapeseed oil) prices had attracted a large premium over other oilseeds.  This premium has destroyed some demand and pulled prices down.  This is likely to continue, especially with Australia harvesting a record canola (rapeseed) crop.

Pulse markets have bucked the trend of other arable commodities.  The price of feed beans has remained relatively flat.  Trade has reportedly been ‘good’ in feed beans, but there are signs that demand may be dwindling.

November Arable Roundup

The price of UK cereals have continued to show strength throughout the last month.  Concern over global availability has pushed the value of May-21 UK feed wheat futures to fresh highs. Additionally, new crop (Nov-22) feed wheat has been trading at more than £200 per tonne through the latter half of November.  This offers a good opportunity to think about your average prices for next harvest.  This support in the futures market has translated into strength in ex-farm prices.  In the week ending 18th November, AHDB Corn Returns prices quoted ex-farm UK feed wheat at more than £214 per tonne.

One of the main drivers behind the continued strength in grain prices has been poor weather, delaying harvests in Australia, and causing quality concerns.  Available stocks in the Northern Hemisphere wheat exporters are tighter this season than they have been for many years.  The market is looking to Australia (and Argentina) to relieve pressure in the market.  However, delayed harvests and quality concerns puts a squeeze on availability.

Domestic milling wheat prices are also showing continued strength at present.  UK ex-farm milling premiums were quoted at just over £52 per tonne over feed wheat, in the week ending 18 November.  This reflects tight availability of quality, domestic wheat.

Barley values also remain supported.  The discount of feed barley to feed wheat has narrowed to levels last seen in August 2019, at less than £10 per tonne.  The surplus available for either stock or export this season is seen at the lowest level since 2018/19.  Strong domestic demand early in the season, combined with 267,000 tonnes of exports up to the end of September, has eaten into the exportable surplus and narrowed the wheat-barley spread.

Oilseed rape prices have backed off slightly over the course of November.  This is not overly surprising given how strong rapeseed prices have been.  The value of rapeseed oil is curtailing demand and this has removed some support for rapeseed prices.  Strength in the Pound has also pressured domestic rapeseed prices.  Sterling hit the highest point against the Euro since February 2020 in November.  This trend in Sterling may continue as we move towards the next meeting of the Bank of England Monetary Policy Committee on 16th December.  Close attention will be paid to decisions on interest rates at the meeting, with inflation still prevalent in the economy.

Pulse prices are also remaining firm for human consumption markets.  As with wheat, wet weather in Australia is causing concern for short-term availability.  Feed markets are under some pressure, with buyers absent in the short term, either through having purchased sufficient volumes or due to a lack of haulage making any further buying challenging.

OSR Area to Rise

The results of the annual Early Bird Survey of UK planted intentions show a 13% rise in rapeseed area for harvest 2022, at 345,000 hectares.  The increase is not surprising given how firm rapeseed prices are.  But, the fact the increase is not greater, reflects the large increases in rapeseed prices since mid-September.  This is after most planting has been completed.

The area of arable fallow is also seen increasing year-on-year.  This is a possible reflection of the surging cost of inputs this season, which will challenge many margins.  With high nitrogen costs we may have expected to see an increase in the area planted to leguminous crops.  However, this is not the case, and the area planted to pulses is forecast to fall by 5%.  As with OSR, this is likely driven by the timing of price rises.

Unsurprisingly, wheat remains a firm feature in the rotation.  The area planted to the crop is set to rise for the second year in a row, following the disastrous 2020 harvest.  The area is seen rising to 1.81 million hectares.  This is slightly down on the 1.82 million hectare crop for 2019.  This will go further to easing the tight domestic market we have now, following the 2020 crop.

With a rise in the area planted to wheat and OSR, barley and oats look set to lose out.  The total area intended to be planted to barley is down 4% at 1.10 million hectares year-on-year.  Area is also seen down 101 thousand hectares on the five-year average.  With grain prices firm it is arguably no surprise that spring acreage is down 8%, whilst winter area is seen up 4%.

If the intended area planted to barley is realised, then we could see the narrow discount of barley to wheat continue.  The barley market is tight at present in the UK, and a reduced acreage would do little to replenish stocks.

It is worth highlighting at this stage these figures represent intentions, rather than confirmed plantings.  Spring acreages are still very much open to change, dependent on the price of both outputs and inputs (especially this season).

 

Arable Markets

The combinable crop harvest is mostly finished; what is probably the most expensive single capital item on the farm, the combine harvester, is back in its shed where it spends over 90% of its time.  The few days of work it does is critical, exciting but inevitably hugely expensive.

Wheat prices for 2021 crop have remained within their upward trend range, despite not recording an overall gain month from month. The current nearby futures feed wheat price of £194 is equal to that of this time last month, but between the two dates, prices have been £11/tonne lower. Currently, the present crop is teetering on contract highs, threatening to hit them this week. New crop (2022 harvest) is also at contract highs but prices have moved only £5/tonne in two months; its time will come.   Over 6 million tonnes of wheat have already been shipped from the EU, over 50% more than this time last year. There is not a 50% larger surplus, so this keen trade is pushing prices upwards, probably unsustainably. The US also has less wheat to ship this year by about 3 million tonnes. With China potentially buying European and US wheat, this is fuelling buying by speculators which is increasing the volatility in the market.

The current crop market is unsettled. Rumours suggest Russia is about to impose export taxes on its grains, making global supply tighter, The USDA is expecting less from Russia than initially predicted.  Dry weather in North America ahead of harvest also reduced crop yields by more than previous estimates in Canada, meaning the USDA publication also reduced production estimates for Canada. This has also fuelled the Oilseed rape prices, as Canada is the primary producer and exporter.

Barley prices are currently good, with brisk business occurring and a discount to wheat of only £7/tonne. A high quality harvest has given maltsters plenty of choice, and also picked up feed barley prices as less is available. Exports of spring barley into Europe are going well. Although some UK samples are high moisture which will keep them off boats.

Milling oats retain a £20/tonne premium over feed oats, sitting around £155/tonne spot for a clean sample.

Bean sales are picking up, but being a late harvested crop and a thin market, their trade is usually last to get going. Buying interest from Egypt, the largest grain buyer is high, although competition from the Baltic States is also present.

Harvest Progress and Market Situation

The British harvest was start-stop in the first half of August, but in the last fortnight, considerably better progress has been made in most parts of the country.  The brief but frequent showers, enough to stop any harvesting for the day, appear to have reduced harvest quality to a degree.  This means there could be a greater than usual percentage of feed wheat and less milling grades.  Our crop projections and the recent planted area information from Defra (see other article) suggest a small wheat surplus meaning export parity for feed wheat and millers looking around for suitable samples for their grists.  Therefore, an increase in the price spread between feed and milling wheat grades might be expected.

Feed wheat prices have shot up another £20 per tonne this month.  This is because of serious weather problems in multiple grain-growing parts of the world.  Both North America (Canada and US included) and South America have had serious droughts this year decreasing the yields considerably.  Russia, another major grain producing and exporting country has also suffered from serious rain shortage and their crop harvest is emerging as much smaller than previously thought.  Not only have prices been increasing, buyers are looking to secure grains further ahead than usual.

Our uneasy weather has also extended into France, the EU’s largest wheat producer.  Reports suggest that wheat harvested in France is of generally lower quality than usual too.  This means that we could expect more feed wheat in Europe than normal, and consequently less milling wheat.  Again, this will only extend the milling wheat premium.  This year could turn out to be an exceptional year for some who have good yields, reasonable quality and market their grain well.

The oilseed rape market has also had an excellent month, back up to £500 per tonne delivered.  The underlying soybean market is rising fast with production difficulties in America.  Additionally, China, with the largest herd of pigs in the world (ever other pig is Chinese), has experienced its pig herd growing by a third this year alone.  Imports of soybeans are therefore rising fast.  On top of that Canada, the largest oilseed rape producer and exporter in the world is also facing difficulties.  It usually produces in excess of 20 million tonnes; current estimates suggest output will be 16 million at best this year, and possibly as low as 12 million; a massive reduction of global supply.  This bodes well for the few who grew oilseed rape this year.  We believe a considerably greater number of farmers are likely to plant it this autumn, in the hope of another good season.

Harvest and Arable Markets

The harvest is in its early stages, with approximately a third of the winter barley in the Southern regions cut so far (it was three quarters this time last year).  At this stage of harvest, high variation of yield and quality is easy to observe.  We will refrain as 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.  However, reports from most regions suggest that conditions are good, yield potential remains high and certainly far better than last year for most growers.

UK wheat markets have risen by £5 over July, but it has been an up and down month.  This has taken other crops with it overall.  Across the world, harvest is moving North.  Most winter wheat in the US has been harvested now.  The springs in northern USA and Canada will be next.  These crops are parched and yields are expected to be low.  Yields across Europe are generally good though.

Every July/August, the world looks carefully to see how closely harvest matches demand and earlier projections.  We hear about dry conditions around the world and the fragility of the food supply chain comes to mind.  The harvest in the Northern Hemisphere over the next two months being so critical to the survival of the ever-growing population.  There is no room for complacency and severe global drought would indeed cause problems across many countries (half of all grain stocks are hidden in China).  However, a number of economists have been proven wrong throughout history by projecting the inability of agriculture to meet the needs of its population.  Currently, stock levels and crop conditions are good and the first real indication of such a situation would be a strong rise in grain values.  This is not happening as we move from old crop (import parity) to new crop (export parity), with the associated price adjustment as we move to exporting wheat again.

Oilseed rape harvest is pressing on, whilst the price is being pulled by good soybean crops in America (North and South) and very dry Canadian OSR/Canola crops.  Within a month, this will be cut and the impact will be assessed rather than estimated or forecast which is what the currently fluctuating markets are based on.