The 2022/23 UK wheat harvest has made one of the earliest ever starts to the season thanks in part to an unprecedented heatwave throughout July. In fact, as of the first week in August it is reported that many of the farmers in the South of England have already finished cutting their winter wheat.
Yields have varied depending on soil type, first or second wheat and whether or not rain arrived at the critical time during the growth cycle. However, harvest reports are generally positive so far, with yields ranging between 7-12 tonnes per hectare, highlighting the mixed picture farmers are facing this year. There are Hagbergs being reported above 300 and reports of specific weights consistently above 80kg/hl, though there are also concerns over low UK wheat proteins, which could potentially direct some of the UK’s quality wheat towards the feed bin. Grain moistures are reported significantly under the 15% max contract spec which, in a year of record prices across the agricultural industry, including fuel, should be a welcome ‘drying’ cost saver for most this season.
The planted wheat area for 2022/23 is 1,807,000 hectares according to the AHDB; therefore, if UK farmers can achieve a national yield average of circa 8.5 tonnes per hectare, then we are likely to have a production number comfortably above 15 million tonnes coming at us this year. Given that domestic demand for the year ahead is arguably going to be around 13.5 million tonnes, with lower feed and industrial usage, then it looks likely we will be back to having a more ‘normal’ exportable surplus. Something that, given the current state of world supply, will be very welcome news to the markets.
Moving into world fundamentals; a beacon of hope for world grain supplies has been granted these past few weeks as the first vessel carrying 26,527 tonnes of Ukrainian corn has left the port of Odessa and will shortly arrive in the port of Tripoli, Lebanon. Turkey, the mediator in the recent grain deal signed between the UN, Ukraine and Russia, says it expects roughly one grain ship to leave Ukrainian ports each day if the agreement that ensures safe passage holds – but it’s a big ‘if’.
While the tonnage on the vessel is not significant when measured against the 6,000,000 tonnes of Ukrainian grain exports a month needed to get world supply and demand ‘back and balanced’, it is nonetheless a very positive step towards releasing supply back into the countries that need it most.
Markets remain incredibly wary of any potential ‘disruptions’ to the Ukrainian/ Russian grain deal, but at time of writing there are more ships loading in Odessa, with some also making their way back into Ukrainian ports, leaving market sentiment cautiously optimistic.
US weather is under scrutiny currently. August is the key month for soybeans, where yields are lost or made. Recent rains have been beneficial to the crop, which had seen seven straight weeks’ worth of crop rating declines up until recently. However, the forecast for the latter half of August across key growing areas shows a very hot and dry weather pattern developing. The markets are rightly keeping a very close eye on this, but it is worth noting that there is still plenty of time for this to change in the coming weeks.
The US corn crop, like the soybeans, has stabilised in recent weeks and has largely moved out of its key growth stage. However, any prolonged stress from detrimental weather can still have an impact on yields, so we keep a very close eye on the US weather in the coming months. For reference, harvest usually starts in mid/late-September for corn and soybeans in the US, finishing around mid-November as it progresses from the Southern states through into the Northern.
Finally, for us the biggest piece of the price outlook puzzle for the rest of 2022 and into 2023 is demand. Feed demand across the UK and in Europe has fallen anywhere between 10-25% depending on where you are. This is significant and while we generally don’t expect demand to fall much further, it should not be underestimated just how much pressure this can put on prices to the downside. Also, you will have seen the recurring stories in the news about global recessions. While we don’t follow these macroeconomic stories as closely as we do the Agricultural fundamentals, they have significant influence in our markets, nonetheless.
If we start to see a more significant flow of grains out of Ukraine coupled with falling demand and better US weather, then prices have the potential to fall much further. But if there is disruption to any of the above then prices will start heading back up. For the time being we continue to manage price risk and volatility as best we can because one day, we’ll go back to normal… surely…?!
David Andrew
Raw Material Manager ABN
First published in NFU Poultry magazine August 2022