Cereals market outlook
The latest Cereals Agri-Outlook takes stock of the current situation and looks forward to what we might expect in the coming months, for supply availability, trade and demand. The volumes below are estimates at the time of writing. The final balance sheet, to be published in September, is a separate piece of work and will give the official end of season supply and demand estimates for the United Kingdom.
Domestic wheat production is forecast to rebound this season, following last years weather challenged crop. With the latest Planting and Variety survey estimating a 26% increase in the wheat area this season, and the wheat crop condition pegged at 68% “good-excellent” at the beginning of July, production this year is estimated c.15Mt.
However, the national condition ratings mask some regional splits, with the North East and Midlands reporting better conditions than the South East and Yorkshire & Humber. Strong regional black-grass effects have been reported, and the wet May weather has increased Septoria prevalence in some areas. As such, there are some concerns surrounding the quality, particularly milling wheat, coming forward to the upcoming marketing season.
Given this, and the low carry-over from 2019/20, domestic supply could still be tight going forwards.
Barley presents a more balanced outlook. While production is forecast back from last years 8Mt crop, it is still estimated at 7.2-7.4Mt. The reduction is largely a function of a reduced spring barley area, as it moved back to wheat production. Pre-harvest (as at the beginning of July), 68% of the crop was rated “good-excellent”, although recent heavy rainfall as harvest commenced has caused a few quality concerns in some areas.
The UK looks set to continue as a net importer of wheat next season. Given the low carry-over of stocks from this year and some delays to harvest, we could see a slight increase to the tightness at the start of the season, until more Northern Hemisphere harvests come on-line.
With the current concerns surrounding the quality of domestic milling wheat, the UK may turn more to Germany and Canada to fulfil the home requirement. However, the recent wet weather in Germany has led to fears that German milling wheat quality could be impacted, potentially affecting availability.
Conversely, it’s dryness on the Canadian Prairies that has been the concern. Conditions have significantly affected the spring wheat crop and it’s yield potential. Drought conditions over both Canada and the USA have provided significant support to global wheat markets over recent months. With the UK needing to price at import parity next season, these factors could continue to provide support for domestic markets.
The UK is set to remain a net exporter of barley for the 21/22 marketing year. Imports could still remain around levels seen in the previous two seasons. However, there could potentially be an increased requirement for malting barley if the domestic spring barley quality has been affected by spring weather, or there are any harvest issues
Exports could be back a touch on 20/21 although broadly similar, with slightly lower production estimated and current strong prices reducing the crop’s attractiveness for export markets. Also, with global maize prices at strong levels, compounders may continue to use barley in rations over maize, increasing domestic demand and reducing supplied available for export.
In addition, with the EU barley balance looking more comfortable this season, demand may be pegged back accordingly. However, should European quality concerns off the back of wet weather play out, we could see some support here. Although with Scandinavian crops currently looking good, this demand could be met elsewhere.
Before the Northern Hemisphere harvests come on line, there could be some tightness in the milling wheat market. Additionally, if the quality concerns both domestically and the EU play out, we could see milling premiums stretched further.
Wheat inclusion in feed rations is expected to increase over 21/22, given the increased availability of domestic supply. In addition, should a proportion of milling wheat fall short of specification, this will further increase the pool available for feed rations as it’s repurposed.
Overall animal feed demand may see some slight reductions if the forecast small contraction of the pig herd is realised. Poultry demand is harder to ascertain. Currently, there is still some uncertainty over the size of poultry demand and slaughter numbers. AHDB is working closely with Defra to align surveys and increase the accuracy of this data.
Demand for barley in feed rations could reduce, as it is replaced with wheat. However, if the discount of feed barley to feed wheat increases substantially, compounders may look to add the grain back to capitalise on savings. Equally, if global maize prices remains strong, barley provides an
Increased demand for bioethanol, with government rolling out E10 in Sept, is expected during 21/22. Vivergo is scheduled to come back on line early 2022 and with increased domestic wheat availability, Ensus could be looking to switch back to UK wheat. This increased demand could grow as the season ramps up.
Brewers, Maltsters and Distillers (BMD)
The continuing easing of lockdown restrictions has already provided some uplift for the industry. June’s human and industrial (H&I) usage was 2% more than the 5 year average, with the European Football Championships likely having a supporting effect. Comparing the rolling five-year averages sees growth of 7% on year for 2022, given first 6 months of restriction in 2021, and some restrictions (social distancing) not off the table yet. However, uncertainty remains the key point here. It remains possible that further outbreaks could occur, potentially bringing with it further restrictions. If realised, these would have further detrimental effects on the food service and hospitality industry if they fell under their remit.
Cereals consumption trends
Before the COVID-19 pandemic, many cereal-based products were struggling such as bread and breakfast cereals. Governmental restrictions imposed throughout 2020, which kept people at home, resulted in a sustained increase in retail demand for cereal-based products. Since restrictions have started to ease, demand for cereal-based products has remained strong.
With many consumers still working from home, the number of in-home breakfasts, lunches and snacks remains elevated, which has been reflected in the year-on-year growth in retail volumes of staples such as bread (+1.8%), biscuits (2.9%) and breakfast cereals (+1.1%) (Kantar 52 w/e 13 June 2021).
Pizza has proved to be a go to in-home meal option throughout the COVID-19 pandemic. Due to their convenience, pizzas have maintained consistent growth in retail spend and volume throughout 2021, although frozen pizza products have dropped back from the 9.9% peak seen in 2020. In terms of volume, frozen pizzas performed better than chilled, as consumers kept their freezers well stocked. Whereas, in terms of value, chilled pizzas performed better than frozen (Kantar, 52 w/e 13 June 2021).
Home baking was a major trend throughout the pandemic, reflected in the retail volumes of pre-packed flour, up 5.7% year-on-year (Kantar 52 w/e 13 June 2021) and building on the 26.2% growth seen the previous year. As restrictions continue to ease, the level of at-home baking is predicted to return to a more normal level.
As a result of governmental restrictions during the first quarter of the year, in-home alcohol consumption has remained elevated so far in 2021. Spirits saw significant growth in retail volumes, up 18.3% year-on-year, additionally beer and lager have also seen double digit volume growth, up 15.8% year-on-year (Kantar 52 w/e 13 June 2021).
Reduced consumer confidence often leads to an increase in snack occasions as we saw in the 2008 recession. Kantar data shows that biscuits have continued to benefit throughout the pandemic, with increases in retail spend +4.9% and volume +2.9% (Kantar, 52 w/e 13 June 2021). As a result of current economic uncertainty, lowering consumer confidence, we expect snacking and biscuit sales to continue to benefit throughout the rest of 2021.
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