Tag: wheat

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.

UK Grain Harvest and Marketing Commentary

UK Combinable Crop Harvest – What Should We Expect?

The harvest is in its early stages; it started a little earlier than usual and for some, even earlier than last year.  Considerable activity until Thursday last week was seen with barley, oilseed rape and even some wheat reaching the barns, but the storms over the weekend have halted most harvesting. We expect a picture of a stuck combine in Friday’s Farmers Weekly as usual!

For much of the UK though, the crops are in a good condition, especially the cereal combinable crops and early indications suggest good yields (albeit early). The jury is still out for oilseed rape, although, whilst we have heard a lot about crop write offs and poor condition crops, there are still plenty of farmers sitting quietly on what looks like a full field of seeds. It is difficult to tell before the combine has been through. The storm over the weekend has flattened some crops at a very late stage which might cause some harvesting problems.

In much of Europe, particularly, France and Germany, the two main grain producing countries, the recent spells of very high temperatures have apparently taken a toll on the ripening crops. However, the crop tonnages forecast remain comfortably above the very poor yields harvested last year.

OSR

Oilseed rape harvest started before the storm.  Following the last couple of very dry days of last week, a few farmers had been harvesting very early in the day or trying to wet the seeds to a level that would be accepted by merchants. To recap, the standard FOSFA contract for oilseed rape is for 9% moisture.  Oilseed rape is not accepted at moisture levels above 10% (or you would incur drying charges).  You gain 1% in price for every 1% the moisture decreases to 6%.  Below that point, it becomes difficult for a crusher to extract oils so is rejected. If you are testing the seed and the moisture levels are heading down towards 6%, advice is to stop harvesting, and restart early in the morning (better than late in the evening because the moisture may have reached the seed rather than just the pod). Wetting oilseed rape is not recommended, as it is often uneven, rather, mix it with some wetter seed to make an average moisture within the tight band.

 Cereals

The barley harvest too is under way. It is early days and the better yields are always reported first so we reserve our judgement for a month. Barley harvest in France is a quarter through and moving northwards quickly. The very first wheat crops are starting to be cut now too, but it is too early to make any useful comments about it.  More next month.

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, with considerably better results than the poor yields from last year. The Black Sea region and Ukraine are also harvesting, with yields up on last season, although the Russian harvest is smaller than initially projected.  North America, the main breadbasket of the grain exporting world is wading through its winter wheat harvest, now being three quarters completed and in China, another large crop is being gathered.

Within a month, the analysts will start publishing their expectations of crop sizes, based not on planted area and trend yields, but more on actual reports coming in from the fields.

This all sounds rather bearish, and often is for a short period, whilst buyers identify what is available, in terms of quality, quantity and location. The calculators then come out and the premiums are established. We note that as the population continues to rise, the overall demand for grains is also increasing every year, and so to simply stand still, the world needs to harvest a record crop each year.

Marketing

When it comes to marketing our combinable crops this year, we should be more focused on the impacts of a Boris Brexit than the actual marketplace itself. Yes, we acknowledge we made similar comments following last season’s harvest and nothing happened, but there is still a chance that Brexit will actually occur, and more importantly, that it might do so without a deal.

Those with combinable crops to sell are reminded that exporters are not able to book sales to the EU post-Brexit day, because they do not know what the price will be (tariffs or no tariffs), so grain long-holders (farmers) should consider the risks and benefits of holding grain unsold into the autumn. Bear in mind that oilseeds have no tariffs so should not be affected by them, beans have only a low tariff and are mostly exported to non-EU destinations so should be similarly unaffected. However, the cereals are potentially holding a lot of value at the moment because the tariff structure protects them. We will probably have a surplus of feed wheat and oats this year so it might be prudent to pass the risk of these crops elsewhere sooner rather than later (i.e. selling them).

IGC Global Crop Predictions

As the northern hemisphere harvest gets underway, the forecasts for global grain output should become more accurate.  The International Grains Council (IGC) released an updated forecast at the end of July which is summarised in the table below.

Wheat stocks are expected to rise according to the IGC to levels of 2018/19, or in terms of stocks as a proportion of usage, no real change from last year.  However, from last month to this, the harvest expectations have declined slightly, making the stock level more akin to last year. A fall of 5 million tonnes from one month to another sounds like quite a lot but at this time of year when the crop is being gathered, it is minimal and of little impact to prices.  Consumers are comfortable at the moment that stocks will be available for them of the quality and specification they require.

The same cannot be exactly said of maize, with production thought 35 million tonnes lower than last year; back to the level seen for harvest 2017.  Consumption continues to go up each year, so stocks as a proportion of usage are forecast lower than previous years.  The IGC has the stock level falling from 322 million tonnes to 273 million, a decline of nearly 50 million tonnes, or in terms of requirement, from 28% of a year’s requirement to less than 24%.  This was already seen in June, but as we enter harvest, the figures will become more reliable.  Whilst this is a more dramatic fall of stock and supply level than wheat, it is still not at a level that is making the consumers frantic.

Soya production is though unlikely to be as high as last year, also being closer to the previous year, but with consumption gradually rising each year, stocks are seen falling from 15.6% to 12.3%; potentially bullish for the oilseed (and protein) price matrix.

Global Grain Stocks

According to those who keep track of such numbers (in particular the US Department of Agriculture and the International Grains Council) the world has plenty of grain in store.  At 640 million tonnes of year-end wheat and feed grains, that is nearly as much as the world has ever had.  That sounds rather bearish for prices.  However, there are two points worthy of note.

The first point to consider is where those stores are being held.  In essence it matters not whether grain is in exporter’s barns or importers silos; it is all available to supply consumers.  But if something is thought likely to remain in store for a considerable time, then its impact becomes significant only at the time of its sale, not whilst it is squirreled away in a barn.  There are more consumers in China than in any other country in the world.  China therefore gets through more grains than any other country; in fact, consuming about half as much grain again than the Americans, the second most hungry nation.  China also produces more grain than any other country, this time by a margin of about 20% over its nearest rival, again the USA.  China has not historically been a large player in the global market apart from topping up their wheat reserves from time to time.  However, it has, in recent years, started importing various grains, including barley and maize as well as more tropical crops like sorghum.  And, as it happens, over half of that 640 million tonnes of grain carry-over stock is held in this one country.  That is equivalent to nearly 10 months supply.  One would assume it will be used one day, as long as it is being properly stored, but it also means that whilst it is locked up like that, the rest of the world has to operate as if it wasn’t there.  Clearly if it is sold and Chinese stocks fall one day, as has happened in the past, it could lead to low grain prices for some time, but in the meantime, stocks, excluding those in China are relatively tight at 300 million tonnes.

The chart demonstrates the grain stocks held in China compared with the rest of the world, and the amount eaten in China compared with the rest of the world. it demonstrates they are holding quite a bit.

Grain Stock and Consumption Globally; China and the rest.

The second point is, we are consuming more grain than we have ever done so as well.  So as a proportion of consumption, 300 million tonnes is not that much.  Of wheat, the closing stocks is about 23% of consumption, almost a quarter of a year, but of feed grains, its 13%, about 6 weeks.  This is about equivalent to ‘pipeline stock’ requirements in the UK and many other countries as the end of the season is June and harvest begins in August.  All of a sudden, its starting to sound a little more bullish.

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.

Grain Crop Commentary

Old Crop

Towards the end of the wheat marketing season, the impact of the fundamentals of grain supply and demand change, with some taking on greater impact, others less.  Firstly, the increasing amount of information over the emerging new crop overtakes the dwindling and ageing information about the remaining old crop, increasing 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 (having entered the notice period for physical delivery of the underlying good).  Market fluidity also declines considerably when futures markets are not available.  The technicalities of closing the held contracts becomes a physical issue either having to physically deliver them or close the position.

This year, domestic wheat consumers are buying no more than ‘pipeline stocks’, as they are fully aware of the considerable discount (£16 per tonne) that exists between old crop and new crop, and that the price between the two crops must converge at some point.  On the back of the previous paragraph, they are aware of the forthcoming downside to the grain market; if physical grain will have to come out of the stores to honour the futures contracts already held, then this will prove a bearish factor on a thin and technical market meaning prices are likely to fall from here.  Indeed, the value of wheat has fallen over the month and this will probably continue.  It could well be time for long-holding farmers to sell the remainder of what they have in their barns.

New Crop

Rain in the UK has been gratefully received, but for most parts, its not enough.  However, analysts are reporting good crop conditions throughout the world and large global areas of wheat.  High levels of planted wheat in Canada and the US, and rainfall in the EU has raised crop expectations this month compared with last.  Speculators and funds are holding a considerable short position (i.e. the have sold what they don’t own, expecting the value to fall so they can buy them back cheaper).  It is maybe no surprise that the new crop is considerably lower priced than old crop.

Demand for feed barley has faded since Easter as the warm weather has provided a welcome burst of grass for the livestock farmers.  Coupled with this, many farmers have used Easter to clear their remaining unsold grain, placing downward pressure on feed barley values.  Volumes of export sales are small, and short term, as nobody is clear what tariffs will be charged on sales after Brexit.

Oilseed Rape prices have held up well in the UK this month partly on the back of a weakening Sterling. The underlying market, the US soybean market has fallen sharply, despite reduced forecast crop areas, and expectations of a resolution of the US/Chinese trade dispute that has been taking place in recent months.  Despite the UK OSR crop looking pretty poorly (see other article), globally the oilseed crops are in better fettle.  OSR is not a price setter itself as volumes are comparatively small compared with other vegetable oils such as soy bean oil.

The old crop Pulse market is now effectively over, and thoughts are now on the emerging new crop in the ground.

International Grains Council Figures

The International Grains Council (IGC) has released its first full supply and demand projection for the 2019/2020 year, showing 50 million tonnes more grain production than last year with a 34 million tonne rise in consumption.  Consumption goes up every year as we might expect simply as population rises and each person is consuming more than consumers in previous years.  This means that production should be a record each year, simply to keep pace.  However, this coming year, despite production clearly rising faster than demand, the stock level is thought likely to fall.  This is because the stock level was already falling and simply to keep pace, production would have had to rise further.  This is demonstrated in the table.  The level of year-end stock has fallen from over 30% three years ago to 26% now.  This is what has underwritten improvements in grain prices in the last year.  China is ever-increasing its holdings of grain stocks, with over half of wheat and possibly as much as 65% of global maize grains being held in its stores.  This potentially means there is much less grain available than these figures suggest as Chinese stocks are not generally available for the wider market.

All Wheat and Coarse Grain (Million Tonnes)

2016/17

 2017/18 2018/19

2019/20
Production

2187

 2142 2125

2175
Consumption

2126

 2153 2170

2204
Carry over

659

 648 604

575
Stock as % of Demand

31%

 30% 28%

26%

For wheat specifically, the picture is reversed.  The stock level is seen rising, with a greater rise of wheat production for harvest 2019, resulting in production remaining well ahead of consumption.  In terms of physical tonnes, there was more wheat stock in 2017 but as consumption was lower in those days, the stock level as a percentage of demand was lower.  This is shown in the chart below.

Wheat (Million Tonnes)

2016/17

 2017/18 2018/19

2019/20
Production

757

 763 735

759
Consumption

735

 741 742

752
Carry over

248

 271 264

270
Stock as % of Demand

34%

 37% 36%

36%

Overall, the figures suggest a strong level of support for grains overall, but there is ample wheat, suggesting the price premium that wheat tends to carry over maize and other feed grains, might be rather slim for a year.

UK Arable Viewpoint

There have been some healthy volumes of wheat export sales from the EU in March, especially from France to third countries, helping to clear out the overall EU surplus.  Whilst it might seem that France is a competitor to the UK and so French business is not good for UK sales, it is still the same Single Market that volume is being taken from, reducing any surplus and a rising tide lifts all boats in the same harbour; at least for now.

The increase in wheat area in the UK this coming year will be the first rise for five years, and, even then, primarily because 2013 was fraught with drilling problems leading to a very low drilled area.  The prospect of a large 2019 harvest is contributing the sharp decline in grain (wheat values) for new crop in the UK just now.  It is also possible that the market has started making an adjustment to partially build-in the cost of tariffs for new crop exports, should we leave the EU without a deal.  The UK has a feed wheat surplus most years, the majority of which has been exported to Iberian customers for decades.  This would be one area where the impact of Brexit would be felt by the farming community relatively quickly.

Old crop feed barley values are still discounted against their calculated feed-value equivalent to wheat, but still higher than new crop in a similar fashion to the wheat prices.  New export business for malting specifications has temporarily slowed whilst traders are unsure of whether or how much tariffs they are likely to have to pay.  It is much easier once they know what to tap into their calculators so they know the relative costs of grains around the world.

Spring drilling conditions have been good to excellent throughout Britain, it’s just that there’s not so much land available to drill as conditions were so good in the autumn, with more land was drilled then as well.  We would assume there will not be much fallow land this year for that reason.  The area of spring wheat has fallen dramatically this year according to anecdotal reports, partly because the favourable drilling conditions last autumn left little space for spring wheat.  Similarly, spring barley area is thought lower than last year too.

The pulse market is just about finished now so anybody with beans still unsold should think about what they plan to do with them.

In Leicestershire’s heavy soils, the damp footprint beneath the boot suggests a good seedbed and ideal growing conditions. However, dig a spade’s depth into the soil and it becomes evident the soil is still rather dry as a result of last year’s drought.  In fact, this winter has also been a relatively dry few months.  The crops survived last year’s drought because of the very wet spring, this year, the soil moisture is far lower than this time last year so crop will rely on reasonable rains this year to reach harvest safely.

BPS or June Survey Areas, which are Correct?

Since the revision of the CAP in 2015, when Greening was introduced, the claim form for direct payments has become considerably more complicated. The necessity to record each crop, which was simply not a requirement of the Single Payment scheme is present with the Basic Payment because of the 3-crop rule.

For the second year running, Defra has published a comparison table comparing the June census crop area figures for England against the claimed BPS crop areas. A noticeable difference between the 2 sets of data has emerged, specifically in wheat, with an almost 7% difference in 2018 (BPS lower). This is equivalent to 108,000 hectares which at average yields is over 850,000 tonnes of wheat potentially  missing, certainly enough to have a considerable impact on the market, especially as it would shift the UK’s balance from that of a net exporter to net importer. The market reacted with an assumption the survey was incorrect which may not be the case.

Examination of the other crops suggests the differences between the two data sources have increased this year compared with the previous 3 years. As the tables below show, considerable differences  of the magnitude experienced in wheat (as a percentage of each other) are also seen in oats, beans and fallow land.

There were no differences to the forms this year, so whilst it is possible that claimants entered field edges and environmental scheme information differently, or entire field versus cropped field areas, one would expect the differences to be consistent year to year. It is barely possible that the different date of each form made any difference (even with the extreme weather conditions) as crops would have been planted for both dates; 15 May and 1 June. Defra is examining the discrepancy and we will report of the outcome when we know it.

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.