Good yields – but fears of quality loss

Scotland, to date, appears to have missed the extremes of that witnessed further south, but we have had torrential downpours, though there’s not been much crop damage as yet.

There are concerns in the south where wheat is being cut and to date excellent quality has been reported with specific weights above 80kg and Hagbergs above 300. However, the forecasted unsettled weather is an increasing concern for crops ready for harvesting as quality will soon drop.

Capturing quality is key for maximising the volume of home-grown wheat that UK millers can use and competing with milling wheat export markets elsewhere. There is current interest in exporting quality wheat but until the crop is actually in the barn farmers are reluctant to commit unharvested wheat as the weather is so unreliable at present.

Sterling will play a big part in future wheat prices and exports and a huge devaluation of the pound last week saw currency trade at a two-year low against the euro and the dollar which pushed the UK prices towards export parity, resulting in some export trade being done in the south of England. The unsettled weather is supporting milling premiums but again it will all depend on the weather to enable quality samples to be harvested before any further bad weather.

With a potential 15.0-15.3m-tonne wheat crop in the UK and currently little domestic demand, the UK will be placing a greater reliance on exports to support prices – but if the pound strengthens, as happened recently, this could drop the price by £2-£3, which will have a knock-on effect on ex-farm prices.

The liffee November feed wheat futures at the end of last week stood at £145.95 and saw little movement from the previous week but did reach £148.75 during the week. On September 1, 2018, the November, 2019, wheat futures stood at £168 and are now £20 down from that mark and the May, 2020, new crop futures last September were quoted at £172, which is again £20 back at around £152 per tonne.

The new Prime Minister has signalled the real possibility of a no-deal Brexit and this is what has caused the pound to drop 2% in value and the lowest since September, 2017, against the euro which in turn helped prices and this is why it will be so important to get the wheat harvested in good condition to get it moving before the end of October onto ships as the imposition of tariffs would make the crop uneconomic to export to countries such as North Africa.

The movement in exchange rate will be crucial to the direction of UK agricultural markets and the value of sterling against the dollar will also be influenced by potential cuts to interest rates in the US. The US Federal Reserve is expected to cut interest rates to support the US economy and this could see the dollar move lower, supporting US grain prices.

In April, 2018, £1 equated to $1.43 and currently £1 equates to $1.20 which, like the euro is the lowest against the dollar for more than two years.

The Russian rouble and the Russian economy as a whole could offer support to global prices. The rouble has strengthened by 10% against the dollar since the beginning of 2019, however Russian economic growth is seen as slowing down and this could lead to further interest rate cuts and a subsequent devaluation of the Russian currency. With Russian wheat increasingly viewed as the global export benchmark, any weakening of the rouble means there’s potential to support wheat prices.

The International Grains Council cut its earlier higher estimate of global wheat supply by 6m tonnes in light of challenging crop conditions in the EU, Russia and Canada. Hot weather in Russia saw forecasters reduce their wheat exports by 6.2m tonnes to 31.4m tonnes, however global wheat production is still seen at record levels.

The most recent forecast from the IGC pegs global wheat production for 2019-20 at a record 763m tonnes, up from 733m tonnes last year or 4.1% more year-on-year. Demand is expected to increase by around 2% and as such closing stocks are expected to grow year-on-year, even with low carry-in stocks.

Canada is forecast to remain dry which is giving cause for concern, temperatures are still relatively low and a lack of rainfall could be an issue. The French wheat harvest was 87% complete as at the end of July as was the Ukrainian wheat harvest at 87% done and yields there are reported up 30% on the year at 4.6t/ha.

The USDA crop report released last week, showed little change in crop conditions on the week. The winter wheat harvest continues to progress albeit slower than last year and they estimate the wheat harvest at 75% complete.

Markets have been dragged lower by favourable conditions for US maize as the weather remains cool and is allowing for excellent conditions for yield development across the US corn belt, currently the planted area remains unknown and this saw Chicago maize futures drop by 2% and this also affected London wheat futures as well. Should the maize uncertainty result in a continued reduced discount to wheat, wheat prices could well see some support from increased feed and industrial demand.

The winter barley harvest is more or less complete in England and well underway in Scotland and for the UK is reported as 49% complete. As with wheat, yield and quality has been good but again the unsettled weather has been a hindrance.

Due to the impending Brexit date of October 31, farmers and merchants will be trying to export what barley they can by that date. With the strong short-term export demand barley has reduced its discount to wheat, particularly in the south where it has reached close to an £8 discount compared to earlier when it was around £20 per tonne.

This relatively low discount makes barley less competitive in compound rations and if the discount continues at this level, it will reduce long term demand which is not ideal with Brexit not far away. Barley usage in compound feed production was up month-on-month in June and maize usage reached 652,000 tonnes last season, 88.2% up year-on-year.

The AHDB harvest results for six winter barley trial sites including one in the Scottish Borders show the average treated yield of control varieties at 10.86t/ha which is ahead of the five-year average of 10.13t/ha. The average untreated yield from the controls is 7.84t/ha, which is behind the five-year average of 8.05t/ha.

The spring barley harvest is underway in the south and again yield and quality look good and you can expect export demand to be non-existent after October 31, again due to Brexit issues and the prospect of a large exportable surplus along with large tariffs if there’s ‘no deal’.

Disappointing yields of oilseed rape have been the norm in the south where crops were affected by flea beetle damage and is also the case in the Ukraine where yields were disappointing. EU production prospects remain equally poor and the EU are still facing a tight OSR supply, which has kept European prices relatively high this season.

Global soya production has been revised lower to 350m tonnes, down 6.1m tonnes than last month’s estimates following a drop in US production estimates.

A weaker sterling, again would continue to support UK physical rapeseed prices and oilseed rape delivered Erith was up by £5 last week to £346.50 and compares to £312 in March earlier this year.