Cereals market outlook

February 2024

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.

Total global grain production is expected to rise by 64 Mt this season (2023/24) to 2,299 Mt, led by maize, with recoveries in US and Argentine output after the droughts in 2022/23. It’s important to note that this forecast is contingent on a large (127 Mt) Brazilian maize crop, over which there is some uncertainty due to delays planting the preceding soyabean crop (see our Oilseeds market outlook). The potential size of the Brazilian crop will be a key factor for markets in early 2024.

The expected expansion in global maize production and stocks has been weighing on global grain prices – this is despite the ongoing war in Ukraine. While exports from the Black Sea continue to flow, the war has effectively become part of the political background for markets.

Global wheat production is smaller than last season – largely influenced by a smaller Australian crop, after drier conditions returned mid-2023 due to the El Niño weather event.

Closer to home, in northern Europe, the quality of the 2023 crops was reduced by wet and delayed harvests. This led to increased premiums for milling and malting quality grain, which is likely to persist until harvest 2024. However, overall wheat prices in Europe have been capped by higher global maize supplies and slow EU wheat exports. EU exports are struggling to compete against another very large Russian wheat crop.

In the UK, challenging weather in the growing season capped yields and led to smaller crops than might have been expected earlier in the year. The final estimate from Defra of the UK 2023 wheat crop is 14.0 Mt; this is down 10% from 2022 and the lowest since 2020.

Total UK barley output is down 6% year-on-year, to 7.0 Mt, due to a fall in spring barley yields. UK oat production is estimated at 830 Kt; this is down 18% year-on-year, with the area and yields both lower than in 2022.

As well as yield, the quality of the 2023 UK harvest was impacted by the growing season and the wet harvest. For example, just 13% of UK Flour Millers Group 1 wheat samples met a typical bread making specification in 2023, down from 33% in 2022. The reduced quality in the UK and northern Europe is having a knock-on effect on demand and trade levels this year, particularly for wheat and oats.

Looking ahead to harvest 2024, many areas experienced above average rainfall through autumn and into winter, disrupting planting of winter crops. Our Early Bird Survey of planting intentions, carried out in early November, suggested that the UK wheat area could fall 3% year-on-year to around 1.66 Mha, with the winter barley area down by 7%. Our November crop development report showed that wet soils and higher slug pressure meant winter crops, especially wheat, made a poorer start for harvest 2024.

Rainfall remained well above average in November in England and Wales (120% of the long-term average) and December (156%). As such, it is widely expected that UK wheat area will be smaller than in 2023 and what was predicted in the initial Early Bird Survey. We will release an update on the potential cropped areas for harvest 2024 on 8 March, subject to spring weather allowing sufficient planting progress.

Typically, crop projections at this stage use the November survey of planting intentions and a range of yields for wheat, barley and oats. But given greater uncertainty over spring cropping this year, including barley and oats, this year’s crop production scenarios (see chart below) focus on wheat. 

We have taken a look at previous wet autumns. For harvest 2013, the final wheat area was 9% lower than the November survey of planting intentions. Meanwhile for harvest 2020, the final area was 15% lower than the November survey. The chart below looks at a range of area scenarios.

As often happens after a wet autumn, our survey showed there is an intention to expand spring cropping, especially spring barley (+11% from 2023), assuming sufficient seed availability and kind spring weather.

As referenced above, domestic quality has been poorer for harvest 2023 and production is expected to be sharply lower in 2024 too. As such, total wheat imports are currently forecast at 1.725 Mt (million tonnes) for 2023/24; this is up by 379 Kt from 2022/23, but just below the previous five-year average. Looking ahead to 2024/25, trade expectations are for a tighter wheat supply and demand, which is reflected in new season pricing. The UK is expected to be a net importer this season and next.

With the UK wheat supply and demand balance 31% tighter than 2022/23, wheat exports are expected to be at minimum levels for 2023/24. Exports are currently forecast at 275 Kt, down from last season by 83%. However, with farmers holding wheat on farm, and slow domestic demand, there is potential for a small pickup towards the end of the season. Minimum exports are expected to continue for next season, with a tighter wheat supply forecast.

For barley, exports are currently forecast for this season (2023/24) at 700 Kt, this is down 38% from last season. This season to date (July–November 2023), barley exports have started steady, totalling 329 Kt, back 31% from the same period last season (HMRC). Exports are expected to continue at a steady pace for the season remainder, though would need to pick up to move surplus supplies ahead of harvest 2024. With a move from winter to spring cropping for harvest 2024 expected, the size of the barley crop remains a key watchpoint for new season exports.

With tighter wheat supplies forecast, if we see a larger discount of feed barley to feed wheat, we could see higher domestic demand. Export potential will depend on domestic supply, as well as price competitiveness against the continent.

Oat exports this season have hit a stronger pace than earlier expected, considering the tighter oat supply and demand balance year-on-year and following two seasons of large oat exports. This season, UK oat exports are currently forecast at 100 Kt, down 42% year-on-year but in line with the previous five-year average. Looking ahead, oat supply is expected to see a boost for harvest 2024 due to a larger intended planted area. This could see strong exports continue in 2024/25, providing the UK stays price-competitive to the continent.

Maize imports for this season are currently forecast at 2.310 Mt, up 9% from last season. With domestic grain supplies expected to be tighter next season, steady maize imports are expected to continue.

Animal feed

Animal feed demand is expected to remain lacklustre this season, following falls in livestock numbers in 2022/23. As such, cereal usage as animal feed is forecast to be up only marginally on the year. Total cereal usage for animal feed in the 2023/24 season is currently estimated to be at the second lowest level since 2016/17, behind only last season.

The anticipated slight increase in cereals usage is down to higher cereal inclusion (due to relative price of alternative proteins), as well as some forecast recovery in the poultry and sheep sectors. Despite the ongoing issues of Avian Flu and elevated energy prices, this season has had a strong start, particularly Integrated Poultry Units (IPU); this suggests some rebound in the poultry industry. For pigs and cattle, however, costs of production are expected to stay high, continuing to pressure margins and raising concerns over feed demand.

Barley is currently featuring more heavily in feed rations, due to its relative price. The discount of the spot UK average ex-farm feed barley price to feed wheat sat at £24.30/t in January 2024, compared to £15.90/t in the same month a year earlier. Due to this heavier discount, barley usage is expected to remain at strong levels for the remainder of the season. Maize is forecast to price more competitively into production later in the season, capping any climbs in wheat demand. 

Milling

The quality of this season’s milling wheat crop was fairly poor, as mentioned above, with particularly low Hagberg Falling Numbers (HFNs) following the wet start to harvest. Given the poorer-quality domestic crop, millers are expected to use a greater proportion of imported wheat this season than last.

Flour production this season is forecast up slightly on the year, though expected to remain subdued due to the cost-of-living crisis and subsequent cuts to demand for premium products. While extraction rates were slightly lower at the start of the season, due to the higher proportion of imported wheat in the grist, rates are now estimated to be at a similar level to this time last season. As a result of initially lower extraction rates, total wheat demand by flour millers is expected to climb marginally on the year.

Human and industrial usage for oats is forecast up 3% on the year. This anticipated rise is due to increased hulling losses from this season’s domestic crop, as well as expectations of increased capacity. However, any major climbs are limited by sluggish global demand for oat products, something to watch out for.

Biofuels

Usage of home-grown wheat in bioethanol production this season started off firm, and with both plants fully operational, year-on-year usage is estimated up. However, lower-than-forecast actual data in recent months, as well as concerns over lower ethanol prices, has reduced some demand expectations for the remainder of the season. The positive resolution to the Renewable Energy Directive (RED II) requirements following the UK’s exit from the EU is also assumed in these estimates, though remains something to monitor.

While maize usage in bioethanol production has been minimal to date this season, it is expected to feature more heavily later in the season given its relative price. 

Brewers, Maltsters and Distillers (BMD)

Total cereal usage from the BMD sector is estimated to remain firm, relatively in line with last season. However, usage of barley in the BMD sector is forecast down slightly on the year. While usage by the sector is expected to remain relatively stable, as distilling demand stays firm, demand for brewing is said to be sluggish due to the rise in the cost of living.

Due to the steady distilling demand, combined with growing starch production, wheat usage in the sector is forecast to rise this year.

What could this outlook mean for UK prices?

With a historically heavy, exportable surplus of wheat and barley, UK prices will continue to track European and global grain markets – this is much like last season. Short-term, competitive Black Sea supplies continue to weigh on global wheat prices.

Looking forward, however, the focus is on maize supplies, with plentiful production expected from South America (weather depending). Therefore, longer-term, heavy maize supplies are expected to weigh on the feed grains market.

New season plantings are also currently a watchpoint, with a wet autumn across western Europe leading to short drilling windows and therefore expectations of reduced planted area of winter wheat and barley. As we near the new season, expectations of a smaller 2024 crop will factor more and more into prices domestically, with a new-crop premium already establishing.

The level of meals eaten in the home during 2023 was 4% higher compared to 2019, but 2% behind when compared to the previous year. There have been slightly higher levels of those eating out or taking food out of the home during 2023; however, both of these remain lower than pre-Covid levels (Source: Kantar 52 w/e 26 November 2023).

For the year ahead we expect inflation will continue to fall, and wages will continue to rise. The overall economic outlook will improve; although there are headwinds, including world conflicts, which have the potential to derail this.

This means that some shoppers will feel genuinely better off, while others will continue to struggle and look to make savings when they can. After three years of overcoming challenges and reconsidering how to spend their money, we expect any changes in shopping behaviour will be gradual.

Consumers are adapting to the cost-of-living crisis by making meals increasingly functional in nature. There are signs from consumers that they are planning meals more and reducing waste to minimise their spend. While planning is up on consumers’ radar, Kantar reports that scratch cooking is down 3%, both against the year and compared to the five-year average (52 w/e 26 November 2023).

In the past 12 months there were dips in the numbers of meals eaten in the home across the day, apart from breakfast which stayed fairly firm. This indicates that breakfast is holding its importance as a meal with consumers. This trend is likely to continue into 2024, with consumers wanting quick and easy breakfasts. However, performance of breakfast cereals has not mirrored the wider breakfast performance; consumption is down 3.3% compared to the previous year (Source: Kantar 52 w/e 24 December 2023).

In the last three years, baking has seen a decline. In 2023, however, we saw signs of recovery versus last year (+1.3%) led by sweet baking occasions (+10%), with a slight dip in savoury baking (-2%) (Source: Kantar Usage52 w/e 26 November 2023).

Volume sales of flour remained fairly stable during 2023, compared to the previous year. There are signs that consumers are making these purchases stretch further, as the number of meal occasions in which flour features has risen by 3.2%. Evening meals and lunch remain the heartland of flour consumption, but breakfast has gained share versus a few years ago (Source: Kantar Worldpanel 52 w/e 26 November 2023).

Biscuit volumes were slightly behind for 2023 year-on-year, with Kantar reporting that consumers are trading down from branded to own-brand biscuits in response to the cost-of-living crisis.

Bread volumes in 2023 were down by 1.3% year-on-year. Rising cost of living pressures have boosted own-label share of sales from 53.4% to 55.9% (Source: The Grocer Bread Category Report/Kantar 52 w/e 19 February 2023).

Retail volume sales of alcohol has dipped 4.4% (52 w/e 24 December 2023), a downward trend which affects the beer/lager and spirits categories (Source: Kantar).

A report from Mintel indicated that 32% of consumers who had bought beer had said high-quality ingredients in beer (such as hops and malt) are attributes worth paying more for. Mintel also highlights that the wide range of occasions when people are open to choosing a craft/premium beer points to strong potential for these to rebuild usage once household incomes improve (Source: Mintel Beer UK 2023 Report).

The volume of spirits sales continues to dip: the cost-of-living crisis is impacting sales in a category where the average price for consumers is £19.15 per litre (Source: Kantar 52 w/e 24 December 2023). Premium ready-to-drink launches have also impacted the spirits category. Canned cocktails may well sell at a higher price per litre, but their lower unit price could be an attractive option to consumers trying to minimise spend.

Our experts focus on crop prospects, global trends, possible destinations for UK cereals and oilseeds and impact on prices.

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