Cereals market outlook

  • Global wheat production is forecast to rise in 2019 amid favourable weather so far this growing season, adding downward pressure on global wheat prices.
  • UK wheat and barley production is also expected to grow after area increases; although dryness concerns linger as we head towards summer.
  • The UK could see greater exports next season, but there is a growing feeling that ethanol demand may curtail the exportable surplus.
  • Barley exports from the UK are being severely constrained by the ongoing lack of clarity surrounding the UK’s futures trading relationship with the EU.

Production

After drought hit the European crop in 2018, initial expectations are for a rebound in global wheat production in 2019.

However, whilst the forecasts are large, there are still a few hurdles to overcome before this crop is realised.

What next?

  • The USDA has forecast 2019/20 world wheat production at a record 777.5 million tonnes.
  • This would give an extra 46 million tonnes more wheat produced in the world than from the 2018/19 harvests.

In recent weeks prices have seen an upsurge due to delays to planting US spring crops. However, the conditions for wheat crops across the northern hemisphere are good and this has kept the price rally in check.

In the UK, both the wheat and barley area are expected to increase. So far this season, growing conditions have been favourable, with heavy rainfall in early May boosting crop conditions. More rainfall will be needed to give optimum growth. If rainfall is seen, production expectations are hovering around 15Mt, up from below 14Mt last season.

The impact on prices of this expected production surge has been negative. New-crop November 2019 feed wheat futures have lost over 10% of their value since the turn of the year. Unless we see a summer weather event on the scale of last years’ drought, there is little reason to expect wheat prices to see substantial gains into harvest.

Trade

The past season has seen a vast increase in maize imports into the UK.

Prices of maize were much more favourable into animal feed rations in late 2018, as such barley demand reduced leaving a growing exportable surplus through the season.

What next?

  • Looking ahead, there are challenges for the barley crop of 2019. Firstly, the size. With an expected increase in winter barley area of 14% and a move to higher yielding varieties, production could see a sustained growth into 2019 harvest. The increased availability lead many to believe that exports will have to rise significantly.
  • However, the ongoing lack of clarity surround our future trading relationship with the EU has been virtually putting a halt to any export trade. Trade has been occurring for the harvest period, yet volumes further forward remain limited. Most notably for malting barley, the lack of a trade deal has drastically reduced confidence in trading with the UK.
  • As such, there is a likelihood of a large barley surplus from harvest 2019 which will need to be exported. If we do not see a trade deal that allows free access to the EU, then the competition into third countries such as Saudi Arabia and North Africa will mean prices remain subdued for the foreseeable future.

Cereals consumption trends

Many cereals-based products have struggled over the last year. Spend on bread has remained flat but volumes are down. The overall number of traditional sandwiches eaten in the home has decreased over the past five years, including last year. We anticipate this trend continuing and for volumes to remain challenging. We anticipate further volume challenges for traditional breakfast cereals but opportunities for on-the-go breakfast products and healthier variants of traditional lines.

Biscuits have seen a small spend increase over the last year. Consumers allow themselves small treats as consumer confidence falls, which has led to an increase in snacking occasions. The wider trends of health have further contributed to growth in ‘healthier biscuits’ – we anticipate this continuing as it helps consumers satisfy the desire to snack but also be healthy.

Oats have seen a significant amount of new product development. Added-value oats have been performing well and oat products are no longer confined to the breakfast occasion, with increases in the snacking and drinks markets. Oats are seen as a healthy food, playing into the growing free-from trend, being gluten free and high in fibre.

Bread consumption volumes are down


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Cereals & Oilseeds: At A Glance

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Gallery: Cereal & oilseeds at a glance

Click on the thumbnail images below for simple visual explanations as to how the cereals and oilseeds markets have performed, according to the latest data. Here we look at measures including UK ex-farm prices, futures prices, production, trade and the GB cereals quality survey.