AS SPRING crops develop and we creep closer to harvest, it is worth taking a look at how this year’s harvest might unfold and how it might affect global supplies.
Well-supplied global grain markets have pushed prices to six-year lows and the stocks expected to be carried forward into 2016/17 will provide a sizeable cushion to any supply disruption. If a substantial weather issue does not occur in the coming season, prices could challenge the boundaries of the past 10 years.
Early projections point to a 1% decline in global wheat area for 2016/17. Reduced winter planting in several key growing regions are a contributing factor, including the Ukraine, due to dry conditions and the US, due to lower prices.
A reduced area was also planted in India after a weaker than normal monsoon period. Dry conditions are also causing concern for winter crops in North Africa.
A shortfall of 24m tonnes globally would be needed in 2016/17 to outweigh the 2015/16 and year previous’ carryover. For supplies to come back to levels seen at the start of the 2013/14 season, when UK feed wheat futures were above £150 per tonne, a much larger deficit of approaching 150m tonnes would need to be seen.
Looking at how the old crop is faring, the majority of the global grain surplus is concentrated on wheat, taking stocks to record levels and eroding wheat’s price premium over maize. The main drivers for wheat in the remainder of the 2015/16 season are just how large the stocks will be and where they will be held.
For maize, there is more uncertainty than wheat around global supplies in 2015/16, as the South American crops are not yet all harvested. The final size of these crops will be important as supply and demand numbers show a small surplus of under 3m tonnes at the global level.
Three years of high global grain production is weighing heavily on prices as the final 2015/16 crops approach harvest. While little is known about 2016/17 potential, history suggests a fourth year of global surplus is unlikely.
Since USDA records began in 1960, four consecutive years of global grain surplus has only happened twice, in the mid 1970s and late 1990s. Nonetheless, the size of global stock levels means that if we see even benign weather in the coming season, prices could be even lower than in the past few years.
The EU has recently established itself as the biggest exporter of wheat, after years of lagging behind the US. Despite lower EU exports this season, it looks set to hold on to this status. Abundant global supplies, coupled with a strengthening US dollar have impacted on the competitiveness of US grain.
The total availability of UK wheat is forecast to increase by 2% this season to 20.1m tonnes and domestic consumption is expected to decline by 4% on the year to 14.7m tonnes. Human and industrial use is forecast to decline by 7% year-on-year to 7.27m tonnes.
Wheat used for milling from July to December, 2015, was 8% less than the same point last year and demand is expected to remain flat for the remainder of the season. Wheat, used by brewers, maltsters and distillers was down by 20%, but usage is expected to increase as the year goes on. Animal feed is forecast to be down, but only by 1% as the mild weather experienced last winter meant that both cattle and sheep needed less feeding than normal.
Due to higher availability and reduction in domestic demand, the surplus available for export or carryover into next harvest is estimated 38% higher than last season at 3.96m tonnes.
Malting barley demand from last July to December was down 7%, compared to the previous year and was due to planned temporary closures, but it is not expected that usage in the second half of the season will make up the previous losses as the industry also faces a general downturn in demand.
Cereal use data for the first six months of the season revealed that barley remained in feed diets at higher levels than anticipated and barley inclusion in animal feed is expected to increase by 1% on the year.
Between July and December, 2015, 97,000 tonnes of maize were imported, the second highest volume at this point in the season behind 2013/14. Despite these high imports, the volume of maize used by UK animal feed compounders was down 2% and down 29% by poultry feeders. The pace of maize imports is expected to slow and possibly reach 1.55m tonnes, which would be the lowest volume of maize imports in four years.
Unlike wheat, barley and maize, the demand for human and industrial consumption of oats is forecast to increase on the year by 5% to a record 525,000 tonnes, though oat demand from the animal feed sector is expected to decrease by 25% year on year and is forecast below the five-year average.