Futures on downward trajectory

Spring sowing is still some way off in Scotland as snow and rain continue to fall in many places.

In the south of England spring barley planting has started and in the same week in Scotland the last of the winter beans are being harvested which makes for a long harvest season.

There are some concerns on UK winter crops with the latest Met Office data suggesting its shaping up to be the second wettest winter in the UK and the warmest on record for England and Wales.

US, European and London wheat futures markets yet again set contract lows mid-week as old crop stocks continued to weigh on prices, and May 2016 feed wheat futures were down 95p on the week to £102.65. Earlier this month, nearby futures dipped below £100 for the first time in almost six years, which begs the question of May 2016 futures if they will also fall below £100.

May futures fell £10 in January and £6.50 in February and in the absence of a substantial weather event or change in demand it is hard to find a reason for futures to stop falling even further and the £100 level might be thought to provide some psychological support to the market but only time will tell.

November 2016 new crop feed wheat futures were down 50 pence on the week to £115.50 and the current continuing low prices are seeing the total winter crop area across England and Wales decline for the second year running.

These changes are thought to be driven by economic and agronomic factors as planting conditions last autumn were again generally favourable.

There is still much uncertainty in what will be planted in Scotland as the combination of increased carry over stocks and a less buoyant distilling market means fewer malting barley contracts are available and some growers will switch to higher yielding feed varieties or perhaps leave some fields to fallow which could see a 5% reduction in area sown.

The English area of oilseed rape is estimated down by 10% from the previous year and the UK is in line for its lowest rapeseed area since 2009 and the area in England planted to cereals and oilseeds at present would leave land available for spring planting at the third highest in the last 16 years.

The inability of being able to use neonicotinoid insecticides has raised fears among some growers of infestations of cabbage stem flea beetle, which were shown to have spread rapidly last year after the ban was introduced.

One area of better news is UK exports and there is greater confidence that UK wheat exports could now exceed 2m tonnes by the end of this month and some wheat exports have been from Scottish ports as well.

This extra activity applies to barley as well as UK feed barley exports continue apace and are expected to continue throughout March and April.

Exports have been helped by cereals becoming more price competitive as Sterling fell to a seven-year low against the US dollar and a 14-month low against the euro which has been caused amid uncertainty of the EU Referendum announcement.

Sterling reached a low of 1.26 to the euro before bouncing back to a high of 1.3 and then easing again.

European export licences for soft wheat now total 18.41m tonnes which is 2.4m tonnes behind last year’s total at this point and EU barley exports continue to stretch ahead of last year’s pace as at March 1, export licences totalling 7.28m tonnes had been issued which is 1.13m tonnes ahead of last year at this time.

At the start of the season, EU imported feed wheat was at a £11 per tonne premium over UK feed wheat prices and sterling has now hit yearly lows against the euro. Recently the gap between imported EU feed wheat and UK feed wheat has grown to £24.70 per tonne.

Very tentative early projections suggest global 2016/17 wheat output at around 723m tonnes which would be 10m tonnes down from 2015/16’s record.

The fall is attributed to lower plantings in Ukraine and Russia, following dry weather in the autumn.

While it is too early to read too much into this, the figure would be around the same level as the 2015/156 demand estimate.

Australia which is the world’s fifth largest wheat exporter is expecting production to rise after the recovery of the strongest El Nino in 20 years and with the potential of El Nino being followed by a La Nina weather event could see crop production further benefit from higher rainfall

In Ukraine, sunflower seed harvest area is forecast to exceed wheat for the first time.

Ukrainian wheat production has been forecast to fall by 30% in 2016 due to poor winter conditions and will see an increase in sunflower production which is their principal spring crop followed by maize.

Ukraine already produce almost 30% of the world’s sunflower seeds and is the world’s largest producer.

With supply outweighing demand the world end forecast of soyabean stocks is put at 44m tonnes which is a new record even with China increasing their soyabean exports by 4.7m tonnes from last year to 83m tonnes.