Tight supply and high prices to continue in grain markets

Supply is set to remain tight and values to stay elevated in the grain and oilseeds markets as the effects of the Russia-Ukraine conflict continue.

The weather and input costs in the run-up to harvest are key watchpoints for any change.

Global grain

There is a bullish outlook for new-crop global grains, with tight supply supporting values, said Megan Hesketh, AHDB senior arable analyst, at the levy body’s spring market outlook.

The balance was already limited before the war, especially for wheat and maize.

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Damage to infrastructure and the increased amount of grain staying in Ukraine had also created some storage and grain quality concerns, which would be taken forward into next season, she said.

The country’s overall grains harvest area is forecast to be down 20% on the 2021-22 crop.

Spring planting is happening, but it is thought wheat and maize will lose out to buckwheat, barley, oats and millet, and it is unclear how much will be harvested.

Russia’s spring wheat area is expected to remain high, but questions remain about sourcing inputs, said Ms Hesketh. Russia has fulfilled a fair amount of wheat demand this season and is price-competitive, with exports forecast to be up further next season.

Elsewhere, EU winter crops are in good condition, but production is predicted to be down slightly on the year, while the dry weather in the US has affected crop quality of late. Prior to that, rain had been slowing maize planting progress, with maize expected to lose out to soya beans.

Bioethanol margins are making sense at the moment, but with everything being squeezed both domestically and globally, that is one to watch, she said.

Domestic grain

According to the planting intentions shared in the AHDB Early Bird Survey, the UK wheat area is expected to be up about 1% to just over 1.8m hectares, while barley will be down 4% to just over 1.1m hectares.

Wheat is generally looking in good condition, but winter barley is more mixed, especially in south-west England, said Millie Askew, senior analyst.

Based on Defra’s five-year average yield, this year’s harvest could see a sizeable wheat crop of more than 14m tonnes and a 7m-tonne barley crop. Imported wheat may be harder to get hold of because of the tight global situation.

It is expected that both bioethanol plants will be up and running at full capacity at some point next season, which will be a big demand watchpoint. However, there may be a decrease in animal feed demand if the pig herd starts to reduce, and with tight margins in the laying sector.

Barley in particular is looking to be in short supply, especially with demand from the brewing, malting and distilling sectors back up to pre-pandemic levels, said Ms Askew.

Prices are likely to stay supported, as long as the global situation and domestic demand remains the same.

Oilseeds

There is also a bullish outlook for global oilseeds, due to tight supply, and high crude oil values driving vegetable oil prices and affecting oilseed prices, said Anthony Speight, senior cereals and oilseeds analyst.

Russia and Ukraine are large exporters of oils and oilseeds (accounting for 80% of the global market). Since the conflict began, crushers have been seeking alternatives, such as rapeseed, which resulted in the price hike.

Sunseed planting is ongoing in Ukraine, but fieldwork is greatly limited and accessing the land and inputs such as fuel is difficult.

In the US, an estimated 36.8m hectares of soya beans will be planted for the 2022-23 marketing year – up 4% on last year – and inputs will be key to ensuring this big area produces a big crop. A rebound in Canadian production is also expected.

Low domestic availability this season means UK prices increased more sharply than in the EU, said Vikki Campbell, arable market specialist manager.

The historic high prices may soften slightly closer to harvest if it looks as if the crop is progressing well, but that is very weather-dependent.

Both UK and the EU are going to have historically tight opening stocks for rapeseed, and though both areas are up slightly on last year, it remains one of the smallest UK rapeseed areas this century.

Even with an increase in supply, crush margins will stay supported, so prices are likely to stay elevated, at least into the first half of the next marketing year, said Ms Campbell.

Rapeseed meal prices have also been supported by the reduction in sunflower seed meal, but this is likely to drop off as they are not as competitive as soya bean meal.