Analyst Insight: A key time to watch markets

Thursday, 2 May 2024

Market commentary

  • UK feed wheat futures (May-24) closed at £179.90/t yesterday, up £0.55/t from Tuesday’s close. The Nov-24 contract gained £0.55/t over the same period, ending the session at £203.00/t.
  • Domestic wheat futures edged higher yesterday, as weather in southern Russia and the US plains remains in focus, see more on this below.
  • Paris grain and oilseed futures markets were closed yesterday due to a bank holiday in France. Chicago soyabean futures (Nov-24) were supported 0.5% over yesterday’s session.
  • Declines in soya oil markets due to weak rival oils pushed down soyabean prices on Tuesday. However, prices gained back some of these losses yesterday, with Chicago soyabean oil futures (Dec-24) also gaining 0.5% over yesterday’s session.
  • Recent rains in Ukraine have supported the country’s rapeseed crop development as of late. LSEG kept its 2024/25 Ukrainian rapeseed production estimate at 3.8 Mt yesterday.
Image of staff member Olivia Bonser

Olivia Bonser

Senior Analyst (Cereals & Oilseeds)

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Image of staff member Matt Darragh

Matt Darragh

Analyst (Cereals & Oilseeds)

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A key time to watch markets

Global grain markets are waking up again, with recent price rises as several top global wheat growing countries face challenging weather.

After hitting multiple year lows in early March, market sentiment has shifted in the past few weeks. Paris, Chicago and UK new crop wheat futures have all recently moved up through key moving averages. The Nov-24 UK feed wheat futures contract closed at £208.10/t on 26 April, up over £30/t since its recent low in early March. While prices have eased back in the past couple of days, the weather will be key to where prices go next.

Domestic outlook

It’s been clear for some time that UK wheat production will fall in 2024, after the wet weather disrupted planting and impacted crop conditions. Tomorrow’s crop development report will give more insight into yield potential at the end of April. But the expected rise in stocks this season could help offset some of the fall in production.

The market is still incentivising people to store grain into the new season. The gap between old crop and new crop prices is large, in the region of £20/t. So, it could be worth exploring if using stores to carry old crop might offset some of the revenue loss for a smaller crop.

That said, the UK is still likely to have a greater reliance on imports than usual in 2024/25. And as quality is a key concern for the 2024 crop, we are looking at likely more imported milling wheat.

Concerns centred on Northern Hemisphere

Germany and Canada are key suppliers of milling wheat to the UK. Germany has also felt the impact of the wet weather and is expecting a 6% smaller crop this year (Germany’s Association of Farm Co-operatives). France has also suffered from wet weather and overall EU-27 production is pegged at 120.2 Mt, down 4% from 2023.

This, plus likely higher demand from the UK could mean sensitive milling premiums in the months ahead. Both old and new crop milling premiums currently remain high. With potential for milling premiums to remain strong, this coming harvest it’s worth monitoring crop quality, segregating and finding the best value market. AHDB’s harvest toolkit includes sampling and storage advice.

Meanwhile, more moisture is needed ahead of planting in parts of Canada and Australia. But arguably the key issues for markets are the dryness in the US winter wheat heartland and Russia’s ‘breadbasket’. Russia is the world’s top wheat exporter and dry weather in the country has in the past caused serious production issues and price rises.

It’s still early days for the 2024 crop. But limited wheat stocks to fall back on in top exporting nations, and speculative traders still being short in key wheat futures markets, mean market reactions can be quick.

Impact on food and supply chains

While volatility in grain markets is keenly felt in the supply chain, the impact on food prices is less clear. These key raw materials are at the foot of many food supply chains, but they go through several processing steps such as milling and baking, which adds value and draws in broader costs such as energy, distribution and more.

A tonne of wheat will produce over a thousand loaves of bread, so the price change of a tonne of wheat is heavily diluted before it reaches the consumer. As such the impact of grain price volatility on food prices is often over estimated. Imports will help mitigate domestic crop issues albeit at higher costs than otherwise for flour millers / bakers.

This is a sensitive time for markets. So, farmers and consumers alike need to increase their awareness of the market. This will be challenging for farmers who are fighting to catch up with a fieldwork at an already busy time. Technology can help here giving the opportunity in short windows of time, and you can get AHDB’s grain market daily delivered to your inbox.

It’s important to take the long view. It’s easy to get into a short-term focus in a challenging season like this, but important to take a step back and consider that arable farm profitability needs to be considered on a multi-year basis. However, cash flows are going to be delicate and so good relationships with banks and lenders will be needed to help fund the longer view.

For farmers in England, the value of taking a longer view is especially important when building the Sustainable Farming Incentive (SFI) into the business and rotation. SFI should be looked at on terms of the direct cash incomes and indirect benefits rotational benefits with the opportunity to use it to tackle poor areas of productivity on the farm”. Read more about AHDB’s analysis of the SFI work and how it can impact business income here.

Understanding your business costs is also critical, and AHDB’s Farmbench and Arable Business Groups can be valuable resources.

Image of staff member Jack Watts

Jack Watts

Head of Economics - Strategy

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