Grain market Outlook Conference: Weather, harvests & demand

Helen Plant, Agriculture and Horticulture Development Board senior analyst, said the prospect of the La Nina weather effect reducing yields in Argentina and Australia was possible.

Although the harvest in Argentina started well with good early rains, further rain is needed. Conversely, Australia has had steady early rains but La Nina traditionally brings heavier rains to Australia, which may impact quality.

If the grain and maize harvests in the southern hemisphere are good, then there should be a softening in prices later in the season.

Wheat demand set to exceed supply

Her comments at the conference come as grain and oilseed prices are currently at historically high levels in the UK and demand for wheat is set to exceed supply by more than 9 million tonnes this year, which will drive stocks down. While 60% of global stocks are held by India and China, more accessible stock elsewhere are likely to fall to levels last seen in 2007/8.

Harvests in key exporting nations

Plant said much rested on the southern hemisphere harvest as wheat production had been squeezed in key exporting nations, due to a combination of factors which have included:

• Hot, dry weather in the US and Canada which has cut production

• Very hot, dry conditions affect the spring Russian crop and Kazakh production

• Quality issues, particularly in France and Germany, despite a rise in EU production.

UK domestic market

Turning to the domestic market, Plant said the Department of Environment, Food and Rural Affairs (Defra) had issued provisional harvest figures, showing the UK wheat crop at just over 14m tonnes, considerably higher than the 9.7m tonnes recorded in 2020.

“There has been a definite rebound after last year’s small crop, but not quite as high as had been hoped,” she said.

Quality for group one milling wheat samples making specification had slipped from 32% last year to just 23% this year. This has been mirrored in other European countries, pushing up prices to £34/t compared with £19/t a year earlier.

Historically high wheat prices on Paris exchange

New crop wheat prices on the Paris exchange are at an historically high level so there is an incentive to plant more land for harvest 2022, but whether this will happen in the UK or globally remains to be seen. Plant said there had been a mixed start in the Black Sea region and the tendency for dry weather in the US mid-west grain belt could lead to a volatile winter.

E10 ethanol blend for petrol

There could be increases in UK demand as another domestic market driver has been the introduction of E10 ethanol blend for petrol, which was introduced earlier in the autumn.

UK animal feed usage

Animal feed usage is expected to rise but the extent may depend on logistics, labour and margins affecting the UK agricultural industry, along with Covid-19 and the wider economic fall-out.

Planting challenges

With prices for next harvest being the highest they’ve been at planting, she said it was still uncertain as to whether there will be an impact on area grown due to agronomy factors such as blackgrass which has kept the UK hectarage to 1.8m ha. Other considerations around fertiliser supplies and prices continue to be challenging.

Barley

Short-term demand for barley is set to remain bullish with a tight supply and global stocks are likely to fall to their lowest levels in modern times, she added.

The UK’s barley crop was provisionally estimated by Defra to be 7.1m tonnes – down 1m on 2020 figures. Barley is currently at a discount of £14/t compared with wheat.

Corn

Vikki Campbell, AHDB arable market specialist, highlighted that maize continue to provide the floor of support for UK grain prices. Further maize imports will be necessary into the UK, although the global supply market remains tight, she added.