By Doug Niven

At last we’ve seen some rain and it was badly needed!

The waters broke at the beginning of June, following just 22.1mm in May and a mere 0.4mm for April in my part of the Borders. That gives a total for the year to date, as at June 1, of 185.8mm, or 7.3 inches.

That decent rainfall and cooler weather will have helped the growing crops in our area, but not all areas of the country have had this moisture.

Rain has also arrived in Northern Europe and Black Sea countries where they were also suffering from drought. Even though it might be too late to help their crops, UK wheat and futures prices still dropped as a result.

November, 2020, new crop wheat futures on May 29 were at £173 and following the wet spell now stand at £169.50 and July, 2020, old crop wheat futures stand at £164 per tonne. Futures are still highly volatile and wheat prices have not been helped by the 1% gain of sterling against the euro.

Last week, sterling reached a five-week high against the dollar and the continuing weakness of the dollar is beneficial for US wheat exports where last week the US wheat exports reached 618,800 tonnes of combined old and new crop wheat.

The weather in Russia and the Ukraine is forecast to reach highs of up to to 34°C this week, which will not be good for their crops that have been suffering from drought. This will affect yields to an extent and the Ukraine is forecasting that its 2020-21 wheat harvest may fall by around 18%, down to 23.2m tonnes – exports are also predicted to fall by more than 25% to under 15m tonnes.

Russia is also forecasting a cut in wheat production to 75.6m tonnes and that’s been a factor in global 2020 wheat production being cut again by 4.3m tonnes, down to 758.3m tonnes, which would see a crop nearly 4m tonnes. That’s smaller than in in 2019-20, but still well above the 2018-19 crop.

The EU 27 countries have also cut their wheat production forecast down to 121.5m tonnes, which compares to 130.8m tonnes last year. France is expected to have the biggest drop from 39.6m tonnes last year to an estimated 32.3m tonnes this year.

The EU and Russia for this season were expected to be the world’s biggest wheat exporters at around 32.5 m tonnes each, but this this year the EU wheat tonnage has been reduced to around 26.5m tonnes due to the difficult weather conditions since planting time.

The UK is still forecasting a wheat crop of around 10m tonnes, which would be the lowest since the 1970s and well down on last year’s crop of 16.2m tonnes. That is mainly due to the prolonged wet autumn preventing planting in vast areas of the UK and some late-drilled spring crops suffered from lack of rain as well.

Last year’s 16.2m-tonne UK wheat harvest and resultant high wheat stocks, combined with a relatively stable demand and an export campaign slowing down since October, has seen a large increase in end of season stocks. These are estimated at around 3.4m tonnes and is thought to be the largest end of season stocks on record going back to 1999-2000.

With November, 2020, new crop futures at a premium to July old crop futures since October, 2019, this has encouraged farmers to store wheat into the next harvest year. This premium has continued to increase as the season has progressed.

Support to the November futures has been helped by weather concerns both here in the UK and worldwide. Covid-19 has also pushed up stock levels due to a lack of demand for food outlets and this is not likely to increase soon.

This large stock figure would be expected to put pressure on prices but with a forecast wheat crop of possibly under 10m tonnes then there are less concerns than there could have been with a normal wheat harvest.

Barley in the UK also saw increased production in 2019 but with increased exports and a slight increase in domestic consumption. However, UK barley stocks are still expected to reach a four-year high.

As much as 250,000 tonnes of additional malting barley could be carried forward into next season in merchant, maltsters or other stores which equates to around 13% of the total average UK domestic malting demand.

Barley use for human and industrial purposes at 1.813m tonnes has been less than normal due again to Covid-19 with pubs and restaurants closed and again there is not likely to be an early resumption of access to these facilities for quite some time.

The H and I barley usage is 4% lower than the previous five-year average and if correct would be the smallest usage since 2010-11 which is not good for another large forecast barley production year and will add to the already large carry over stocks currently forecast to be the largest since 2015-16.

There is a large barley area planted this spring because of the wet autumn, but the latest UK crop monitoring report rates 48% of spring barley and 25% of winter barley as being in ‘good or excellent’ condition – well down from the 75% and 89% that were recorded last year. While they might recover now that we have had some rain, again it is only some parts of the UK that have had any meaningful amount of rain.

There are concerns because of the dry weather that malting barley quality will be compromised, with lower yields resulting in higher nitrogen levels. But demand will not be as great, again due to Covid-19 and some think it could be down by anything from 20%-40%.

The AHDB released figures last week showing that UK maltsters had used 28.1% less barley this April, compared with April, 2019. Barley use for the brewing, malting and distilling sector in April was just 114,700 tonnes. The last time that barley usage fell below 120,000 tonnes in a month was August, 2009, when just 111,500 tonnes were used.

Spain has had good crop growing conditions and they are expecting a crop of over 20m tonnes of which barley represents about 50% of the total it needs. It was the largest export destination for UK barley exports in 2019, but this year will not require any imported barley from the UK.

Oilseed rape prices have picked up with markets up £20 per tonne during May which was partly due to a 2.5% devaluation in sterling and the increased use of vehicles once again. This is helping demand for the 60% of rapeseed that goes into the biofuel sector.

Oilseed rape delivered Erith for harvest is quoted at £330.50, which is up £10.50 from price quoted on May 7.

The prospect of pubs, cafes and restaurants opening sometime, hopefully in the not too distant future and a potentially smaller EU oilseed rape crop is helping to support prices. Due to Covid-19 and resultant lack of demand for rapeseed oil there is a much larger carry over of rapeseed and rapeseed oil from 2019-20 into the new season so the lower crop plantings in the EU this year may not have such an effect on supplies as was originally forecast.

Oil world is predicting that EU-28 crushing will drop by almost 500,000 tonnes this season as a result of lack of demand in the biofuels sector. Predictions are for rapeseed stocks-to-use ratio to drop to 12.6% by the end of this season which represents the tightest starting stock position since 2016-17.

Now that some countries are easing their lock-down measures, vegetable oil prices are picking up and Brent crude oil futures which are a key driver in vegetable oil markets have gained by 36.8% since May 1 and at the end of the month was at a contract highest level since March 11 and the fact that OPEC counties are cutting production levels is another supporting factor.

As oilseed rape price rises this will also see an increase in the use of imported lower cost maize in animal feed and human and industrial use.

Last week, imported Black Sea maize, before freight costs, was quoted at £142.07/tonne compared to UK delivered wheat at £178.00 per tonne, so not a direct comparison, but by importing maize this will ease some of the pressure of a tight UK domestic wheat crop but could put pressure on domestic grain prices.

Maize prices are expected to be under pressure with large global maize stocks due in South America, Ukraine and the US also having 93% of their planted area of maize now done and 74% of their maize crop quoted as in good to excellent rating which sees both their planting and crop condition figures higher than last year at this time which will put pressure on maize prices resulting in cheaper UK maize imports.