Cereals market outlook

January 2022

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. This is a seperate piece of work to the AHDB balance sheets, the next of which will be published 27 January 2022.

Production

Globally and domestically, the current outlook is for the tightness to remain in wheat markets. Global wheat prices have soared to multi-year highs over recent months, with supply challenges following weather-stricken harvests in major exporting nations and a Russian export tax restricting volumes of Russian wheat entering the global marketplace. The UK, as a follower of global grain prices, has seen prices rise accordingly. Despite a bumper Australian crop entering the market at the back of 2021, this tightness looks set to remain until Northern Hemisphere new crop comes online.

This has been exacerbated by the tight supply situation domestically. Despite a rebound in production for harvest 2021, to 13.988Mt, the UK entered the 2021/22 marketing year with the tightest opening stocks this century. So, what might we expect for production for harvest 2022?

wheat production projections

The UK winter wheat and winter barley area have both been estimated up this year, by 1% and 4% respectively. Given the favourable conditions seen for winter drilling and strong prices incentivising planting, this is perhaps unsurprising. Given winter drilled crops have increased in area this season, planting intentions for spring drilled crops are back on the season – spring barley down 8% on the year.

As at the end of November, winter drilled crops were faring well, with 84% of wheat and 90% of winter barley crops in good-excellent condition. However, with high fertiliser costs being experienced currently, there are concerns that some applications could be reduced or delayed. Potentially, there could be yield implications with doing this.

Globally, the balance sheet looks slightly more bearish for the 2022/23 marketing year. The US, EU and Black Sea wheat areas are all up on the year, which could bring more supply to the market and ease global prices (although from a very strong level).

However, both globally and domestically, there is a lot of growing time between now and Northern Hemisphere harvests, which could shape production outlooks in the coming months.

Trade

The UK remains a net importer of wheat this season. However, the rate of shipments has slowed on the last marketing year following a strong start to the season.

Chart showing wheat imports

High grain prices, coupled with logistical constraints and strong freight rates could all be a factor in the slowing import pace and may weigh on volumes going forward. However, given the tightness of UK supply this season, an uptick in imports may be seen as the UK waits for the domestic new crop to come online, especially if harvest is delayed.

Barley exports are forecast down on the year. Given the smaller opening stocks this season for barley and production last season back to 2018/19 levels (6.96Mt), total UK barley availability has reduced this season more than reductions projected for UK consumption. The reduction in the exportable surplus, coupled with the current strong barley prices, has seen the export attractiveness of the grain reduce. In addition, the logistical issues and freight rates impacting wheat imports are also weighing on barley export volumes.

Demand

Milling

Concerns over the availability of milling wheat this season have eased, with millers widening their specifications to increase the proportion of usable crop. While haulage issues have been impacting volumes, especially over the Christmas period, it is thought that these will start to ease as we move through 2022.

Animal Feed

Wheat inclusions in feed rations are expected to continue to be elevated on last season over barley, given the relative availability of feed wheat this season. As such, we have seen the premium feed wheat holds over feed barley tumble from over £50/t in the summer to less than £5/t at the beginning of this year.

Overall demand for animal feed is predicted to stay elevated until we move into the summer. The livestock backlogs on farm have increased demand, particularly for cereals which play a more dominant part in maintenance rations. However, as herd rationalisations are realised into the summer and beyond, animal feed demand should begin to subdue accordingly.

Biofuels

With the introduction of E10 by the UK Government last September, the demand for biofuels has increased domestically. Preparations to reopen the Vivergo plant are reportedly well advanced, so we could see that coming online in the next few months. Coupled with the Ensus plant, demand for wheat into the north of England could strengthen.

However, should the wheat price continue to rise, or logistical challenges continue with moving grain up the country, imported maize might prove a more reliable and cost-effective alternative.

Brewers, Maltsters and Distillers (BMD)

With coronavirus lockdown measures continuing to ease, and the Omicron variant not proving as bad as initially fearer, the BMD sector is forecast to continue its growth on the year. However, rising inflation and increases to the cost of living may adversely impact the hospitality sector, which could weigh on demand for Brewers, Maltsters and Distillers.

Cereals consumption trends

Before the COVID-19 pandemic, many cereal-based products, such as bread and breakfast cereals, were struggling. Government restrictions imposed throughout 2020, which kept people at home, resulted in a sustained increase in retail demand for cereal-based products. During 2021, where restrictions started to ease, demand for in-home cereal-based products dipped but compared to pre-COVID many remain at elevated levels.

Hybrid working is fast becoming more commonplace for consumers: during 2021 there were still higher levels of in-home breakfasts, lunches and snacks compared to pre-COVID but lower than the peaks of 2020 as foodservice started to re-open. This has been reflected in growth in retail volumes of staples such as bread (+3.8%), biscuits (+6%) and breakfast cereals (+1.9%) compared to pre-COVID, but with subsequent dips in these three categories against 2020 (Kantar, 52 w/e 26 Dec 21 vs 19).

  Infographic showing retail sales by volume of bread, biscuits, cereal 52 weeks to 26 December 2021  

Pizza had proved to be a popular in-home meal option throughout the COVID-19 pandemic, due to their convenience. Both chilled (+3.2%) and frozen (+5.9%) have seen in-home volumes remain higher than pre-pandemic. Easing of restrictions meant consumers spent more on pizza out of home (+14.8%) during 2021 compared to 2020 (Kantar, 52 w/e 26 Dec 21 vs 20). This rise in out of home impacted in-home volumes during 2021, with both chilled and frozen volumes behind levels in 2020.

  Infographic showing retail sales by volume of pizza 52 weeks to 26 December 2021 

Home baking was a major trend throughout the pandemic, however during 2021 we have seen the baking trend slow. Volume sales of home baking goods were down 8.9% compared to 2020 but they do remain 7.3% ahead of 2019 levels (Kantar, 52 w/e 26 Dec 21).

As a result of restrictions easing and the out-of-home market opening up, retail volumes of alcohol saw a dip as more consumers enjoyed the ability to go out. That said, in-home alcohol consumption does remain significantly elevated compared to pre-pandemic levels. Spirits volumes are up 24.1% and beer and lager have also seen strong growth versus two years ago, up 26.8% year-on-year (Kantar, 52 w/e 26 Dec 21).

  Infographic showing retail sales by volume of beer, lager and spirits 52 weeks to 26 December 2021 

Reduced consumer confidence often leads to an increase in snack occasions as we saw in the 2008 recession. The easing of restrictions meant that consumer were able to spend a little more time out of home so biscuit sales were down 2.6%. However, Kantar data shows that biscuit volumes remain at an elevated level compared to 2019, with volume sales up 6% (Kantar, 52 w/e 26 Dec 21). As a result of the current economic uncertainty, which is lowering consumer confidence, we expect snacking and biscuit sales to continue to benefit compared to pre-pandemic levels.

Visit the retail and consumer page for more insight.

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