Arable Crop Outlook

Toward the end of Old Crop.

We know that as one season ends and another starts, the prices (old crop and new crop) come together. Sometimes this takes place suddenly over a day when harvest begins, other times it is some distance away as for this year.   As the May 2013 UK wheat futures contract came to an end (the last of the old crop futures contracts, other than technical July) old crop prices came down to join new crop values as we can see from the chart. The market is now truly focused on new crop, with any adjustment to old crop based on any localised surpluses or shortages. There is now no financial advantage of saving old crop into the new.  Some growers have been holding crop back to blend light 2012 grain with (hopefully) heavier 2013 crop. This might work but some grain buyers are specific to which grain year they buy. In other words, blending could reduce the number of outlets the grain can be sold to. Make sure farmers check with their merchants what their intended outlets will accept. Farmers planning this with their wheat might also be wise to double check the Hagberg levels as when mixed, the blended Hagberg is less than their average.

UK 2012/13 Supply and Demand

The penultimate DEFRA UK grain supply and demand estimate was published in May (the last will be in September).  It demonstrates that, for wheat, despite a very low crop size, the UK looks likely to carry out a greater wheat tonnage than in 2011/12 to the tune of 440,000 tonnes (this is 3% of the harvest and 29% higher stock carry out than last year). This has happened before when harvest has been very low; farmers have held tight to what they have in the barn and consumers have had no trouble importing their requirements from elsewhere. There is no way the UK farmer can hold the consumer to ransom; the global marketplace operates as well for agricultural commodities as almost any other good. This surplus means that the chances of the UK grain price commanding a premium over the European grain price from now until harvest is pretty much gone.  Curiously, the barley surplus is also forecast to be slightly higher than it has been for 2 years.

We can also see from the chart that the 2014 wheat crop remains more or less steady at a £11-12/tonne discount to 2013 where it has been since February. There are, as yet, no real market factors affecting the 2014 supply and demand so prices will be based on the 2013 factors until information reaches the marketplace after drilling time. It is early days yet to sell the 2014 crop, but those who see a bear market in the making might be well advised to think about putting 5-10% on sale.

As growers look around their fields in many (most) parts of the UK, they might be excused for thinking there is ample evidence to suggest a shortage of domestic grain this year andtherefore a bull run is on its way. We note the several forecasts that have been made (mostly informal) are for less than last year’s 13¼ million tonnes of wheat. However, we also have to remain focussed that whilst the UK is in deficit, the rest of the world looks to be gathering the potential for a much better harvest than last year. In particular the rains in the US grain areas including the Mid West have put the key exporting country into a far better position for growing crops (wheat, maize and soybeans) than this time last year. Global grain forecasters are pitching higher grain expectations for this autumn than last year, with a small rise in stock levels.

Furthermore, the small surplus that the UK is somehow going to leave this marketing year with is likely to remove any chances of the UK old crop market rising above the European market prices before new crop appears and probably trade at a discount. Come harvest, it will still have to remain competitive as of course, the world is now more or less a single marketplace.

Most forecasters agree that the UK spring barley crop is covering between 700 and 900 thousand hectares in the UK, higher than it’s been since 1988. Thus, many maltsters are expecting a bumper crop of malting samples to select from. In fact, whilst more choice is always better than less for a consumer, the malting premium remains relatively strong at £18 to £25 per tonne. This reflects the likelihood that as spring malting barley varieties yield as high as spring feed varieties, all of the crop planted will be to a malting variety but some will be grown for feed purposed. Also and more critically, much of the additional land planted to the crop will be heavier than is ideal for malting, and, whilst it might offer a useful feed barley crop, farming for low nitrogen samples on these farms could be extremely difficult to achieve. Many ‘first time’ spring barley growers may find their malting premiums could remain elusive. Beware about selling the quality specification before harvest.

USDA Report

The USDA published its first global Grain and oilseed supply and demand estimates for the 2013 harvest in May. In line with the International Grains Council, they expect the forthcoming grains and oilseed crops to be larger than the last 2 years. Stocks of grains are forecast to increase slightly from the 2011/12 year (3%) and substantially (17%) for oilseeds. Since this publication was prepared and released, the USDA has also highlighted the massive amount of US maize drilling that has taken place in the second half of May. US drilling was way behind last year at the start of May, but a single week of ideal conditions all-but put the maize plantings back to the level it would normally be at this time of year. Grains have been drilled late this year but they are in. This has played a bearish card for the grain markets although crops have barely emerged so are still highly vulnerable to the weather over the coming weeks. We are entering a volatile time of the grain marketing year as weather reports have big impacts on traders, regardless of whether the weather actually affects the crop conditions!