Weather and war again causing uncertainty

‘With the war continuing in Ukraine leading to uncertainty around supply from the Black Sea region, Southern Hemisphere output has become even more important to global supplies’

YET again we’ve had another mix of mild days, sunshine and some very wet spells by the end of October – with 72.5mm of rain fell last month in the eastern Borders, to give a total for the year of 420mm, or 16.5 inches.

I am told by my ‘weatherman’, John Aitchison, of Lochton, near Coldstream, that we need another eight inches before the end of December just to reach the average rainfall for the year.

With the mild weather and the fourth mildest October on record in England, grass has continued to grow and only this week it turned white with frost and suddenly gritter lorries were out again – does that mean winter is now imminent?

With extended milder weather comes livestock being kept out longer than normal, cutting down on some feed costs – which will be very welcome for the livestock sector. Animal feed compound production for the first quarter of the season, from July to September. fell by 5.89%, compared to the same period last year, resulting in cereal use over this period being down by 9.4%r.

While it was down for most raw materials, maize saw an 18.7% increase over the first quarter of the season due to high year ending stocks from last year of up by 18% on the year. Regarding feed production, sheep feed was the only sector to see an increase yearon-year which amounted to 7.2%.

Now that the grain harvest is all tidied up and surveys done, the AHDB cereal Quality Survey, including data up to October 24, confirmed that this year’s protein content in milling wheat was below average, but specific weights and Hagbergs were higher than average. Proteins averaged 12.6%, specific weight was 81.6kg/hl and Hagbergs averaged 347 seconds – which meant that 33% of Group 1 milling samples met a typical spec’, compared to 20% in 2021.

For barley, the average nitrogen content of samples was 1.52%, with winter barley at 1.7%, up from 1.57% last year. The N content in spring barley averaged 1.5%, which is marginally higher than in 2021. The specific weight of winter barley averaged 68.1kg/hl, up 3.3 kg/hl while spring barley’s 66.4kg/ hl was up 3.4kg/hl on last year.

Recently, Russia said it had withdrawn from the export arrangement struck on July 22 in response to a drone attack on Crimea and this immediately saw wheat futures rise sharply by £9 per tonne but no sooner had this happened than it then announced it would continue with the export deal after receiving guarantees that Ukraine would not use the corridor for military operations against Russia.

So, immediately wheat futures fell by £10.25 per tonne which saw market volatility resume once again. Since the deal to allow exports was agreed in July, 43% of total cargo shipped from Ukraine had been maize and 29% wheat. So far there has been no statement from either party to confirm the deal will extend beyond the initial 120-day period, ending on November 19.

Currently, 65 ships remain ‘stuck’ in Ukraine across various ports and there are insurance issues regarding cover for those ships until a clearer picture emerges as to the continuation of the export agreement. It appears that insurers refused to grant fresh cover for vessels that were returning to Ukraine which caused concern for the 22 boats anchored in Ukrainian ports waiting to be loaded plus a further 101 boats awaiting inspection.

With the on-off situation regarding the Russian grain export arrangement, wheat futures rose and fall back just as quickly, but over the piece during the past two weeks, there has not been a big change in futures – the November, 2022, Liffee feed wheat futures were up by £2.25 per tonne to £267.25 and May, 2023, static at £282.

UK prices have not followed the global market following the Bank of England’s increase in interest rates from 2.25% to 3%. This is the highest level in 14 years and following that news, sterling lost 2% in value against the dollar as predictions of a prolonged recession were aired, financial markets were also having to deal with the US Federal Reserve lifting interest rates by 0.75% as well.

With the UK having a large wheat surplus of around 2m tonnes and little demand at present, any unsold wheat should benefit from a weaker sterling and this might stir possible export interest.

There has been some interest in feed barley exports to Spain and Portugal, and a few cargoes have been shipped, but exports are not running at a fast enough pace to move the potential surplus of nearly 1.5m tonnes for that crop, even with a good malting barley sales programme.

If this situation continues, it will result in a stock build up at the end of the year and therefore a drop in the value of sterling is crucial to help UK exports and thus prevent a build up for harvest next year, which would dampen the market then.

Russia is thought to have exported 4.5m tonnes of wheat in October as it tried to increase exports of a potential 47m tonnes surplus from a record 100m tonne crop. Australia is looking to produce a wheat crop of 34m tonnes – the country’s second ever highest crop after last year’s record of 36.3m tonnes – but persistent rain and flooding there is damaging yield and quality.

Argentina is having the opposite issues. Prolonged drought conditions, being put down to a third successive La Nina weather event, had cut wheat potential to just 13.7m tonnes, well down from last year’s record of 22.5m tonnes. That would be its smallest crop since 2015-16.

Australia and Argentina have accounted for around 6% of total global wheat production and 16% of total global exports over the past five years. With the war continuing in Ukraine leading to uncertainty around supply from the Black Sea region, Southern Hemisphere output has become even more important to global supplies, especially when we discover that US wheat ratings last week came out at just 28% ‘good to excellent’ – the lowest rating in history.

UK gas prices have been falling over the past two months, back to levels in line with last year. Prices have come down by 66% from peaks seen in August when they reached 640p/therm which was due to the tightening of Russian gas supplies via the Nord Stream pipe-line, plus strong EU demand. Prices, however, eased higher last week when UK natural gas futures prices jumped by 22% and then again dropped by 7% to close at 278.69p/therm.

Prices eased because Europe has experienced much milder weather than usual and it also met its target for refilling gas storage to 80% by November 1 and is currently at 93% of capacity, up from 77% at the same point last year.

Oilseed prices have picked up recently, despite increased global production which is expected to be around 76m tonnes in 202223. Weather issues are always a concern for supplies and heavy rainfall in Australia is giving concern as its harvest is just about to commence.

Another market factor is China’s demand for vegetable oils and oilseeds, with concerns there over increasing Covid issues and demand reduction as a result of more lockdowns. Time will tell on that one.

A major factor in the oilseeds market is the availability of product from Ukraine as ships are experiencing considerable delays due to increasing wait times when going through checks in Turkey. This is causing concerns as the current export arrangement may not go on for longer than the original agreement – but it still appears that well over 50% of Ukraine’s exportable surplus rapeseed has now been shipped.

Defra released its bean crop figures for the pulses and the bean area for 2022 – they increased to 208,000 ha, up from 185,000 ha in 2021, which is a rise of 13%. If a yield of 3.6t/ha is assumed, this brings a crop in excess of 750,000 tonnes which also included some old crop carryover.

The pea harvest had fallen this year to 56,000 tonnes, down from 60,000 tonnes in 2021 which is a fall of 6.3% – but as the area is relatively small there is very little impact in the marketplace expected.