The Gleaner By Doug Niven

Another year passes and still the Brexit issue has not been resolved and will we be saying that again at this time next year?

This issue is causing much volatility in the currency and commodity markets. As the value of the euro relative to the pound has strengthened, and the pound weakened since the middle of November due to political and Brexit uncertainty, UK feed wheat futures have gained value.

After the euro hit a recent low against the pound in mid-November with one euro equating to 87p, this past week the euro was worth 90p. Alongside the changing value between the euro and pound, old crop May, 2019, UK feed wheat futures have gained £9.10 over the same period, closing at £180.60 last Friday, December 21 and was up £4 alone last week.

New crop November, 2019, futures were also up by £2.90 to £162.90. This is the highest price at this time of season since 2012-13, which is 15% above the new crop price this time last year and prices are still ahead of the last seven-year average.

Due to the possible impacts of the goings on in parliament, the value of the pound will continue to be volatile and UK feed wheat prices will continue to be influenced by politics.

Another factor to be considered is the increase in planted wheat area and if there is a return to average yields this would result in an above average UK wheat crop.

EU production of soft wheat in 2019-20 could reach a four-year high of 147m tonnes and if that is realised, the increase in production would represent a 20m tonne, or 13% rise over this season and the largest crop since 2015. The upswing has been driven both by an increase in the area planted to wheat, following good establishment conditions and a favourable price environment.

One factor that could upset the previous statement is the weather, as difficult sowing conditions in some areas and mild weather across Europe has led to some winter cereals being underdeveloped. If temperatures were to drop below freezing, these underdeveloped crops could be at risk of damage due to reduced frost tolerance.

For most of Central and Western Europe, weather since the start of November was much warmer than usual. In Scandinavia, the average temperature has reached between 4-6°C higher than average for this time of year, while regions in Eastern France and Northern Italy were 2-4°C higher on average.

In addition to the warmer weather experienced so far for some, conditions have also been drier than usual in parts of north eastern Europe. Regions in Eastern Germany, Eastern Czech Republic and Southern Poland have faced a rainfall deficit, which is likely to have exacerbated any stress that crops have faced.

However, in western European countries – including UK, Ireland, France, and Portugal – rainfall has exceeded the average for the period from November 1 until now.

The final estimates for Scottish cereal production for 2018 have recently been released which has highlighted the impact of this past year’s challenging season regarding crop production. Total cereal production declined by 12% on the year to 2.5m tonnes with average yields falling to 6.0t/ha, down 0.6t/ha from 2017.

Scottish wheat production is expected to fall by 208,000 tonnes on the year to 681,000 tonnes, the lowest level since 2013. Difficult conditions in late 2017 reduced wheat planting and these adverse conditions continued into spring and early summer of 2018. This significantly impacted yields, which fell 16% from 2017 to average 6.8t/ha.

Winter barley production in 2018 was also affected by the weather. Reduced planting and yields resulted in a record-low production of an estimated 268,100 tonnes, representing a 24% decline from 2017.

The 3% increase in spring barley planted area helped to mitigate some of the effects of yield reduction of 6%, however Scotland’s most widely grown crop recorded an overall fall in production of 3% from 2017 to 1.4m tonnes due to the poor spring and drought-like conditions of summer.

Other factors helping world wheat prices include the increasing optimism over the improving US/China trade situation which is helping US weekly wheat export sales hit a season-high of 754,000 tonnes.

The fast pace of Russian wheat exports is also making an impact, with supplies proving harder and more expensive to find. Egypt bought 120,000 tonnes of Russian wheat this past week paying US$6 per tonne more than they paid in last week’s tender and the highest price they have paid for imported wheat for almost four years.

After a rapid start to Russian exports, the pace has now slowed down as supplies close to the ports are being exhausted and winter weather is hampering grain transport. These factors, along with a smaller Russian wheat crop than in 2017-18 – when they exported a post-Soviet record of 40.4m tonnes of wheat – means that this year it expects to export around 35m tonnes.

The Tariff Free Trade agreement between Ukraine and the EU has permitted up to 950,000 tonnes of Ukrainian wheat to enter Spanish and Portuguese markets this season duty-free. By contrast, the €12 per tonne levy currently being imposed by the EU on Russia has kept Russian wheat out of the markets.

For the 2018-19 season, Spain’s wheat import demand is 3.9m tonnes and 75,000 tonnes of barley and Portugal’s wheat import demand is 1.1m tonnes and 300,000 tonnes of barley.

Cuba is the largest importer of wheat in the Caribbean with annual imports totalling 800,000 tonnes and this wheat is processed in Cuba for the production of flour for bread and pasta. The bread market accounts for the majority of Cuba’s wheat imports and there are five flour mills in Cuba which, between them have a total annual milling capacity of up to 500,000 tonnes.

Argentina is having weather issues with rain and consequential flooding as well as frost and hail damage affecting their wheat harvest which is 60% completed and their production estimate is now put at 18m tonnes which is 200,000 tonnes down on the last estimate and quality is being affected as well.

The recent USDA report raised world wheat ending stocks by 1.39m tonnes to 268.1m tonnes due to increased EU and US stocks, maize world end stocks were raised by 1.3m tonnes to 308.8m tonnes and this increase is due to a fall in US domestic consumption.

UK maize imports for the 2018-19 season so far remain well above the five-year average, total imports for the season to date stand at 772,000 tonnes, the highest figure in recent years. In addition, UK wheat imports for the season to date remain the highest since 2013-14 highlighting the tight domestic picture.

Bread milling wheat ex-farm was down 40p last week to £176.10, feed wheat was up £2.30 to £169.90 and feed barley was up £1.40 to £165.20.

There has been little UK malting barley business as export values have dropped, but existing malting barley contract export business continues at a good pace, domestic malting barley prices remain firm and show strong premiums over feed barley.

Oilseed rape delivered Erith was up £1 to £335.50 last week and again markets are volatile with political and Brexit issues.

With the US/China trading back on stream, it is believed that China has bought 1.5m tonnes of soyabeans from the US and it appears that China needs to acquire this tonnage and the US is equally keen to export to China because if not they will end up with record stocks.

The canola harvest in Australia is almost complete and cargoes for delivery in the first six months of 2019 into Northern European crushers have already been traded.

The French 2018-19 winter oilseed rape area has seen a sharp decline down to 1.2m ha and this represents a 24% reduction from last season and down 19% on the five-year average. The decline is a result of dry conditions earlier in the season hampering efforts to grow crops and restricting emergence.

Scottish oilseed rape production is anticipated to have fallen by 12% on the year in 2018 to 126,000 tonnes and UK imports of rapeseed approached 15,000 tonnes in October and this compares to over 26,000 tonnes in October, 2017.

Finally, I would like to wish everyone a very happy festive season and a prosperous 2019.