Tight supply keeps cereal and oilseed markets high but volatile
© Tim Scrivener Cereal and oilseed prices continue at high levels, but are volatile, with UK wheat and barley supply tight.
Markets are susceptible to news about the Russia-Ukraine conflict, with hopes for a ceasefire pushing prices down slightly early in the week. Globally both wheat and barley are in tight supply for this season, as is maize.
A lower US maize area was expected to feature in a US Department of Agriculture report due out on Thursday 31 March.
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Meanwhile, weather concerns are starting to cast doubt on 2022 crop potential, with dry conditions in parts of the US hard red wheat area, for example.
There is export demand for feed barley, but traders are struggling to get sufficient volume. Ukraine has banned exports of barley for the rest of this year, making the new-crop outlook very tight overall.
Barley closes gap
UK feed barley values have closed the gap proportionally with wheat since prices raced upwards on news of the conflict.
Feed wheat quotes midweek averaged £299/t ex-farm for April, down just £1 or so on the week, while feed barley was at almost £293/t, up £5 on the week and touching the £300/t mark in Yorkshire for May.
A longer-term comparison shows how barley has gained ground – AHDB delivered feed wheat prices into the Avonmouth area for May are £115/t higher than year-ago levels, while feed barley delivered into East Anglia in May is £140/t higher over the same timescale.
The AHDB’s recently published update for the 2021-22 UK cereals supply-and-demand balance sheet raised the wheat balance (total availability for the season less domestic consumption) from the previous estimate but, at 2.164m tonnes, it is still the third-tightest on record.
The barley balance, estimated at 1.8m tonnes, is the tightest since 2012-13, said the AHDB.
Many imponderables
Looking further forward, Cefetra grain origination manager Simon Wilcox said: “Supply may well get tighter and push prices, but countries will react by bringing more land back into production and by stopping biofuel production.
“This will put a cap on potential price levels as governments will want to stop massive price inflation. Will this be hampered by lack of supply of fertiliser, though? These are some of the imponderables we are all trying to assess.”
Mr Wilcox said it was important to make sure growers have covered some new-crop at current high price levels, if nothing else to cover the high input costs for next year. He thought most people have covered 20-30% of new-crop wheats.
Oilseed rape
Midweek, new-crop oilseed rape was quoted in a range from £610/t to £640/t ex-farm at harvest, depending on region, with north-east Scotland at the lower end of the range.
The last loads of old-crop continue to be sought after, at an average of £791/t ex-farm midweek, but with April prices ranging up to £811/t in areas close to crushers and ports.
Harvest 2023 budgets
The combined risks of extreme price volatility along with supply and climate issues make budgeting for the 2023 harvest more challenging than ever.
The variables added by the Russia-Ukraine conflict have made a difficult job almost impossible, as the timescale and effects of the action are so unpredictable.
Where to put budgets and how to make cropping decisions all depends on attitude to risk, says Andrew Wraith, Savills’ director of food and farming.
“You don’t want to get caught out by buying expensive [inputs] and selling cheap. There is also the supply risk, particularly with fertiliser.
“It amplifies the need to know where you are now and how 2023 fits with your attitude to risk – it will depend on land type and capability, cashflow and flexibility of the fixed-cost base.”
His rough 2023 feed wheat budgets use prices ranging from £175-£230/t and yields of 8-9.3t/ha. These produce gross margins ranging from £309/ha to £1,035/ha.
Variable costs have been put in at £1,097/ha, which is double the level for his original 2022 crop budget. Nitrogen costs for the 2023 crop are in at £536/ha, which assumes an ammonium nitrate cost of £925/t.
“I think that if this autumn is good, people will put first wheats in, but will question second wheats and other winter crops based on the forward price outlook, so some will maybe opt for more spring cropping instead to ease the input spending and cashflow pressure.”
New-crop sales on the farms he advises are slightly ahead of normal volumes, and perhaps more cautious in terms of spreading the risk by selling smaller individual volumes.
Banks are taking things very much on a case-by-case basis, said Mr Wraith.
