The Gleaner by Doug Niven: UK to benefit from home-grown demand

It is too early to get any meaningful results, but first impressions are that moistures are good and bushel weights are satisfactory. Balers have been out behind the combines and already some fields are cleared, before getting ready for sowing next year’s crop.

Earlier this month, AHDB released its latest UK planting and variety survey results, providing planted area estimates for the 2020-21 season. As we all know, due to the dreadful autumn of last year, winter cropping was reduced dramatically in favour of later spring drilled crops and then we saw near drought conditions from March until May and welcome rain fell in June. This month has been a bit mixed, with some cooler weather.

As I write this (July 20), this day last year was the warmest one at 38.7oC and as harvest gets underway in earnest, farmers will be hoping for a settled dry spell of weather, even though the land is dry and not ideal for getting new crops planted for next year’s harvest which will be underway very soon.

The AHDB figures show that wheat planted for this harvest is down by 25% at 1.36m ha, with the largest drop taking place in North-west England down 49%, Yorkshire -32% and North-east region of England down by 16% which will see a lot of wheat grown in the south of England moving north.

This will see a UK wheat crop around 9-10m tonnes, in comparison to the 16.6m tonnes produced in 2019. Wheat imports of up to 3m tonnes may be required to meet demand and, with quality not assured until harvest is done, merchants could struggle in the coming weeks to satisfy customer’s requirements.

Estimated areas of Nabim Group1 and 2 varieties account for 41% of the 2020 GB wheat area which is up 5% on last year and the variety Skyfall has 10% of the group1 area due, in part, to its late planting capability.

The Liffee feed wheat futures market has been responding to uncertainty of this year’s wheat crop production, not only here but elsewhere around the world. Currently, November, 2020, futures stand at £168 and for May, 2021, stand at £173.75 per tonne. There has been a slight rise in price last week led by firming international markets off the back of reports of poor yields, coming for example from Russia, Ukraine and France.

Despite the UK wheat market being supported by the expected small wheat crop, it should be noted that December, 2020, Chicago maize futures stand at a huge £58 per tonne discount to November, 2020, UK wheat futures. So even though UK wheat futures will remain at the top of global markets, due to our small wheat crop and import parity, we should not forget that even though there are reductions around the world in wheat production we are still going into a global surplus.

Some facts that could help the wheat surplus issue is that maize production in China is estimated to be down by 4%, or 10m tonnes to 250m tonnes this year due to the presence of army worms. USDA has also reduced the US maize planted area by 5m acres and this area is equivalent to over 20m tonnes of wheat.

UK domestic prices have also been helped by a weakening pound against both the euro and the dollar. The UK economic output figures highlighted worse economic growth in May than expected and the year-on-year growth in May stood at -24%, as opposed to an expected 5.5% growth in May and this resulted in sterling falling 0.5% against the euro.

With the June 30 deadline now well passed for agreeing an extension to the Brexit transition period and the continued political uncertainty with regard to Brexit, currency is likely to play a key role in determining domestic wheat prices for the foreseeable future. That's because the UK is facing an ever-decreasing window in which to agree a Brexit deal before leaving the EU on December 31.

Not only Brexit issues, but the impact of Covid-19 could see the UK facing the biggest recession since the 1940s. Around 7.5m people are on furlough at present and when this scheme comes to an end in October, unemployment is sure to rise and incomes will fall which will have an impact on many businesses such as farmers as consumers will have less income to spend on food.

Getting back to this year’s harvest, which is now well under way in other parts of the world. Russian wheat yields are reported to be 26% down on last year, with harvest now 20% complete. Wheat production is down by more than 1.5m tonnes to 76.5m tonnes, so it is tempered somewhat by a larger area.

EU wheat production is estimated down again to 130.3m tonnes, which is 600,000 tonnes down on the June estimate. That is mainly due to a 130,000 ha cut in the French wheat growing area bringing the area total to 4.45m ha, in comparison to 5m ha in 2019, resulting in French wheat production 8m tonnes down on last year at 31.59m tonnes – its smallest wheat crop since 2004.

Overall, the EU-28 estimate is 17m tonnes lower than in 2019 and Germany is looking to produce 21.6m tonnes of wheat, which is just a little over 1m tonnes down on last year.

In the Southern hemisphere, wheat planting in Argentina has been affected by prolonged dry weather leading to a predicted cut in wheat crop estimates of 3m tonnes, to around 18m tonnes. That's due to 400,000 ha not being planted, thus reducing its wheat area to 6.6m ha.

The recent AHDB survey for the UK winter barley crop showed the overall area for this year has been reduced by 34% to 296,000 ha. The GB spring barley area is estimated at 1063k ha, which is a 52% increase year-on-year and in England the barley planted area is up by 76% year-on-year. Overall GB barley planted area, including spring barley, is estimated at 1,358k ha, or a 19% increase on last year.

Feed barley prices have failed to rise as wheat prices have done this past week, despite barley export prices being supported by weaker sterling. It has also been a quiet week for malting barley as buyers are still well covered given the strong barley stocks and as a result of the decline in demand due to Covid-19 many. That means buyers will wait to see the results of the large UK spring barley crop, which is due be harvested soon.

The total oat area for Scotland and England is estimated at 211,000 ha, Scotland's area is down by 2% but England has increased its area by 26%, indicating that a lot of intended oat plantings were scheduled for the spring as an alternative to the lack of winter drilling or replacement of oilseed rape where crops had suffered, especially in England from cabbage stem flea beetle damage. Also, oats in England were being grown to help combat black-grass problems.

The AHDB oilseed rape area survey puts the combined area for Scotland and England at 387,000 ha, which is 26% down year-on-year. The Scottish area is up 2% and the English area is down 28% at the lowest recorded English area planted since 2002. The latest crop condition report rates 15% of the total winter OSR crop as 'very poor' and 26% as 'poor', indicating a high risk in terms of loss.

There has been little change in UK oilseed rape prices this past week which had been around £348 delivered Erith, but there are concerns given the lack of demand in the commercial vegetable oil sector due to Covid-19 and low crude oil prices. US commercial oil stocks stood at 531.7m barrels as of July 10 which is a decrease of 7.5m barrels on the previous week and has seen some support for crude oil markets.

EU oilseed rape production has been dropping since 2017 and is forecast to produce only 16.46m tonnes this year, or a whopping 25% drop over the past three years. That means the EU is likely to need to import 250,000 tonnes in 2020-21, but the Ukraine – which had been a major supplier in recent years – is expected to have a reduction in output this year of around 0.5m tonnes.

Australia is expecting to produce up to 30% more canola this year, which would see a total of 3.2m tonnes and the other country that could supply the EU is Canada, where output is put at 19m tonnes and is expecting to produce an extra 800,000 tonnes this year. That will help, as the estimated EU import requirement from Canada is reckoned to be around 1.9m tonnes.