Almost all this season's crop updates have started by talking about the effects of extreme weather and global political issues are having on the harvest and grain prices. Well, September’s update is going to be no different.
The hot, dry conditions we have seen since the spring have led to one of the earliest finishes to a UK cereal harvest ever. The severity of these conditions has led many farms in the southern counties to report dramatic drops in yields and, in many cases, grain quality.
The events in the black sea, where both Russian and Ukrainian forces have been targeting loading facilities and shipments of grain at a time when this shipping activity should be at its peak, continue to keep global grain prices high. In the US, energy prices remain high due to the ongoing conflict with Iran.
Crop Conditions
Wheat
Even with the second half of August seeing slightly more rainfall across the UK, the conditions have still been good enough to allow the cereal harvest to progress to a very early conclusion.
Apart from more upland farms in Scotland, all areas of the country now have the wheat harvest securely in stores. Having the vast majority of Scottish wheat harvested allows us to gauge the North/South divide in crop performance.
As mentioned in August, there had been reports of cereal farms in central and southern England harvesting significantly lower-yielding crops as a result of the severe weather conditions. Some have indicated that crops reached barely 30-40% of their average yields. In contrast, Northern England and Scotland saw rainfall during critical stages of crop development, so have gained from the levels of sun energy during the summer. There are yet to be reports of record high yields; the wheat yield figures being quoted across the north of the UK are well above average, especially in first wheat crops, with 12+t/ha being frequently reported.
The dry conditions have allowed harvest to progress without much need for the drying of crops, which will be a major saving given the current price of oil. Another positive is that the wheat grain quality seems to be very good in all areas.
Barley
We looked at the winter barley harvest in last month's update, so we will turn our attention to the spring barley harvest, which now only has the very outlying, higher areas with crops still to cut.
Again, this will be one of the earliest spring barley harvests on record, and it will be no surprise that the outcome is showing the same regional differential as the winter cereals, with the north performing up to and beyond average yield, and the south struggling to fill the stores due to badly stressed crops yielding poorly.
Grain quality in northern crops seems to be promising, with good grain-fill meaning low screening figures and healthy specific weights. Looking at malting specifications, the barley nitrogen content appears slightly higher than average but generally still within market requirements.
Markets
Wheat
The bullish movements in the wheat market over late July have continued through August, particularly over the last week of the month. The background to this firm sentiment is partially due to the poor wheat crop performances through much of western Europe and some US states.
But by far the most significant factor is the situation which is developing between Russia and Ukraine, where both sides are going to great lengths to disrupt the other's grain exports through the Black Sea. These countries are generally the most competitive sellers in the global wheat market, with very large exportable tonnages, so when they are both taken out of the trading position for a few months, the response is much greater upward pressure on prices.
At the time of writing, Turkey is attempting to broker an agreement to open up the cargo channels, but it is far too early to assess whether this might ease the tensions and let the exports flow again. Other supportive factors are reports of a poorer US maize harvest forecast, down 10% from last year, along with the International Grains Council cutting their forecast for this season's grain tonnage, now 27.5mT below last year's figure.
The UK Nov wheat futures market was trading at £196.50 at the start of August, but due to the bullish trading, the market reached £206.50 by 24th August and, remarkably, increased substantially in the last week of the month to stand at £215.75 on 31st August.
There may be a response to the Turkish proposals which could weaken the market over the next few days but, unless there is a tangible positive development in this element of the conflict, it is likely that the markets will remain in a bull form. Ex-farm prices are similar to where they were at the start of August, trading around £203 for October, £204 for Nov in southern Scotland. With the futures prices trading at current levels, or even slightly less, these values look well supported.
Barley
Although the general trend in the grain markets is a bullish one, the actual physical trade on feed barley hasn't as yet responded very positively with ex farm values in southern Scotland still at similar levels to the start of last month at £170 ex farm for Sept. This is likely down to quite large tonnages being marketed for Sep/Oct movement, particularly for barley which isn't required for malting. The demand for malting barley has improved but only slightly, and there is more barley being offered than that trade is likely to take up, which is putting a little bit of pressure on the short-term markets.
With reports filtering in of poorer maize crops in the US as well as France, it is still felt that prices are well supported, and it would come as no surprise if they showed a firmer move through the next month or two. The November ex-farm price does indicate this slightly by offering £175.
Practically every factor behind assessing grain market movement is showing bullish traits, so the expectation would be that next month's report will be talking of higher wheat and barley values. As the autumn progresses toward the southern hemisphere harvest, there will also be further updates on the El Niño effect on the Australian harvest, which is likely to enhance these bullish sentiments. However, as has been seen numerous times in the past, it is never that straightforward, and we should always expect the unexpected.