Gleadell Viewpoint Spring 2009

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CEREALS 2009 VOL 7, ISSUE 2 www.gleadell.co.uk

The world market is here The trader who can tell you confidently and definitively where the coming season’s grain and fertiliser prices are going is either uninformed, foolish or some relation of ‘Mystic Meg’. Added to the usual variables of weather, currency rates, political intervention, and supply and demand, is the greatest unknown we have seen for a long time: it is the global recession and its effect on grain consumption and the speed at which the world will bounce back.

The temptation for farmers to look at their local neighbourhood, and start their marketing ideas from that standpoint, is strong. It is hard to sell wheat, barley, rapeseed or pulses when your crops could ‘do with a drink’ and you know that barren patches are present in some of your fields. It should be less hard to look forward to 2010 and confidently buy your fertiliser and sell some wheat at prices that leave a relatively good gross margin. It might be hard for some but we would say it is definitely the way forward.

MARKET PROSPECTS

Fertiliser We are sure the huge volatility we have witnessed in the last twelve months will not be seen again and, with some of the fertiliser industry still licking their wounds as raw materials prices have continued to fall, a more cautious approach will be taken in the future.

As is usual in these situations, things always gets overdone on the upside and this can often be said for the downside so the prices in the market place today do offer good value.

The only exception to this is Potash,

Contents

MARKET PROSPECTS

But this is the world we live in now. Trading at, or close to, world prices brings price movement and volatility that Courtesy of Farmer’s Guardian we are getting used to. Information is king, and global factors are the driving forces behind the markets we trade in. Making quick decisions can be the difference between locking-in a profit, and barely breaking even - and this harsh commercial reality is something farmers, consumers and traders are faced with every day.

This does not stop us urging farmers to grow for local markets and to produce what local consumers need where possible. It is just that the price farmers receive for their crops will be driven by global issues to a much greater extent than local ones.

There are many positives to see when one looks forward: the world population continues to grow, biofuels are taking a larger slice of crop surpluses, and the market needs to price an ‘incentive to produce’ into forward crop years.

where we expect prices will continue to fall further, but Phosphate could rebound beyond June if Brazil, Pakistan and India return to the market and there is a strong US summer programme. Urea prices seem to have found a floor in most areas, supported by recent tenders in India. With the threat of Chinese exports now receding, the Egyptian product we now accept as the benchmark product in the UK is finding support at today’s levels.

We expect a more traditional market this season and, although many farmers who bought early last year feel they got caught out by a sudden price drop at the end of the season, they should remember this has only happened once in the last nine years - and recent analysis of GrowHow and Kemira price lists over that period suggests

• Milling Wheat • Pulses • Malting Barley • Oilseed Rape • Feed Grain • Organics

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But this does not mean that complacency is the way to reap the rewards of the future - 2008/9 has surely taught us this lesson.

Structured, analytical, reasonable, and well-advised marketing, both for inputs and crops, is the sensible way to cope with the volatile future that lies ahead.

Not every company can provide this service and some patently are incapable of doing so. Gleadell can, and does, and will continue to do so in the years ahead.

We have the track record, the financial muscle, the market information - and, perhaps most importantly, the people - to keep providing UK farmers with an evolving, innovative and customerfocused first class arable marketing service.

We are pleased to welcome both new and existing customers to our stand at Cereals 2009 and to discussing with you how we can help you maximise your returns in the forthcoming season.

David Sheppard, managing director, Gleadell Agriculture

early buyers have benefited by an average of £18/tonne.

The Gleadell fertiliser business has bucked the trend of last year’s falling demand and continues to grow as we concentrate on our core Yara and import activities. So, when considering next year’s fertiliser requirements, ring your Gleadell Farm Trader to discuss your options.

Calum Findlay, fertiliser trader

GLEADELL AROUND THE COUNTRY

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Malting Barley MALTING BARLEY FACTS

• WORLD RECESSION IMPACTS ON BEER SALES.

• UK BEER SALES DOWN 8.3% IN 2008.

• 2000 PUBS CLOSED IN THE UK IN 2008.

• EU MALT DEMAND FALLING. • UK SPIRIT MARKET HIT. • EU 2009 MALTING AREA REDUCED.

• UK SPRING MALTING AREA UP 15%.

• FUTURE UK BIOETHANOL A THREAT TO UK 2010 CROP MALTING PLANTINGS.

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MARKET OUTLOOK | SHORT TERM The coming together of the world recession and the oversupply from 2008 - one of the world’s biggest and best quality malting barley crops - is putting huge pressure on the logistical and price prospects for this coming year. Beer and spirit sales in large areas of the world are dramatically down, consumers are drinking less, companies are reducing stocks, and brewers and maltsters have consequently withdrawn from the market. Maltster harvest intake bins are full of malt and old crop barley; they also have a significant amount of malting barley bought from the 2009 crop. All of this means that selling opportunities for the rest of 2009 are going to be difficult to come by, subject to crop quality of course!

MARKET OUTLOOK | MEDIUM TERM 2010 is a different story in that the log jam over maltster stocks should have eased and this year’s potentially smaller EU crop, coupled with a recovering demand for beer sales, should lead to an increase in malting barley demand. This scenario is reflected in the fact that there is already good demand for January/June 2010 and there is a premium of around £15/t for October 2010 over October 2009.

MARKET OUTLOOK | LONG TERM The world population is growing apace and, hence, the demand for beer is increasing. The world is eating more meat and the demand for feeding stock is also forecast to increase. There is also the growing demand for feedstock from the bioethanol industry, all of which is also putting pressure on supply and price. All in all, the fight for acres continues, ensuring that the price for wheat and maize will remain supported. Brewers will have to pay a respectable premium to malting growers to ensure that malting barley is continued to be grown by the best growers to provide the best quality product.

In the UK we also have the direct threat of 2mln/t of extra demand coming from the bioethanol industry which will impact on both malting barley plantings and prices. Gleadell see this as an opportunity for UK malting barley growers, and we have been very active in making new longterm domestic and export partnerships. We are sure these will benefit all of our trading partners in the years to come. 2010 onwards will bring opportunities for good malting growers, of that we are certain. There is a bright future ahead.

Stuart Shand, sales director

Feed Grain

EU wheat production has risen sharply this

numbers and feed demand. Carry-out

year to 152mln/t, from last season's weather-

stocks should increase, albeit with a

hit 120mln/t. Exports have remained under

steady export programme and current

pressure all season, as increased production

export interest.

Record high grain prices in the 2007/08

from the Black Sea region allowed export

season triggered increased wheat areas

restrictions implemented last season to be

for 2008/09 throughout the globe. Despite

lifted. This has resulted in record export

production problems in the southern

activity from Russia and the Ukraine,

hemisphere, record yields in other major

especially into the EU, and EU traditional

producing regions produced a record

export destinations. Although EU wheat

global wheat crop of 683mln/t.

exports are forecast to increase by some 8mln/t, wheat ending stocks are also

With demand faltering, mainly due to the

projected to almost double to 21mln/t.

ongoing global financial crisis, stocks are

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Looking forward, the world looks to have an abundant supply of wheat.

However, crops are not yet made and, with planting delays, weather concerns and tightening soya and corn supplies, this has provided support to global wheat markets. New crop remains at the mercy of the weather but, with the future demand for commodities -

projected to sharply rise to 167mln/t, up a

The UK, like other major producers, has seen

including wheat - uncertain, forward

massive 47mln/t from a year ago. With the

a record crop of over 17mln/t on increased

prices will remain volatile.

wheat area forecast to fall for the 2009/10

area and record yields. Weather played a

season, the USDA have initially estimated

part, with rain causing many problems to

David Woodland, feed grain trader

2009/10 world wheat production at 658mln/t,

unharvested crops, resulting in much

with stocks again set to rise to 182mln/t,

downgrading to feed quality. Demand has

the highest amount for 8 years.

also suffered, mainly due to reduced animal

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MARKET PROSPECTS

Milling Wheat Old Crop As we come to the end of the current campaign it is interesting to note a bit more demand around for milling and soft wheat for June and July. The premiums for full Group 1 and 2 are still as attractive as we can ever remember them being and will remain so until the quality of the coming harvest is established. It is a strange market. At the moment, we have a situation where the August price for guaranteed quality is more than the July price so this is obviously focusing farmers’ minds on whether

Organics Old Crop Demand remains steady for all organic raw materials, although uptake is a little slow as we approach new crop positions. The case for ‘in-conversion’ however is proving very difficult as this market has almost exhausted itself, particularly on oats and barley. Feed wheat could eventually find a home. Organic milling wheat demand remains strong with very good premiums available at any protein level.

Feed beans also remain firm for July onwards.

New Crop The UK supply of home grown organic cereals and pulses reflects a small percentage of total volumes required by the feed and milling industries.

Consequently, usage of home grown over the season will continue to be supported and not compromised by the volume of imported raw materials. Market forces will determine price

Pulses Winter Bean crop development looks good with plants showing no sign of stress from the recent lack of moisture.

Flowering has started and plants continue to grow.

The PGRO has indicated that Bruchid beetle activity has been high and thus they have been advising a spray programme. The spring plants, on the other hand, were stunted through lack of water, but seem to have now started to grow again - time will tell as to yield factors.

The market followed wheat in sentiment with a few part cargoes of human consumption types trading, also a few cargoes of feed.

The prospects for the coming crop looks good with early demand for the human consumption types and prompt shipment being the key.

to sell June and July or sell the carry into new crop. Our view is that it is worth making the decision based on what you have left to market. Sell the carry or sell the opportunities that come along on the old crop positions waiting and doing nothing is a very risky strategy as the very wide carry cannot remain in the market.

Harvest Group 1 premiums forward are very attractive for farmers with sizeable premiums over feed wheat. Capturing the quality this year in Group 1 and 2 wheats will enable growers to lock into a very good premium market - it is well worth paying that extra care and attention to the milling wheat crops you will harvest this coming

levels, and currency exchange rates will also have an effect. Support in sourcing home grown produce has always been a key factor for the end user and there can be no doubt that, given a competitive choice, the household consumer would also prefer to purchase home grown products. The organic industry will continue to be a key factor in providing choice for the consumer. It is vital that both producer and processor are able to justify their respective businesses in order to secure organic sustainability.

Hopefully, for the coming harvest, producers will not endure the heartache experienced last year. However, the basic principle of establishing quality still applies with regard to marketing of crops. New niche markets are opening up and good premiums are available.

Facilities for drying, cleaning and storage are in place should we encounter another variable harvest.

Brian Wilburn, organic trader

Expect these markets to track wheat, at least until we have some indication of yield and quality.

Depending on these factors, the market will remain quiet from the point of farmer selling and merchants’ reluctance to further expose themselves to the risk of the market at this stage.

It is important to remember that business to the Middle East demands maximum moisture content at 15%. There is, and will always be, some scope for blending but, in the main, exports will demand this to be a maximum level.

The final pea acreage looks to have increased possible total production for 2009/10, but still at a level under consumption. Again quality will be the key, albeit that the end consumer’s standards will be to buy what the final crop produces.

Ian Skinn, pulses trader

season. Cordiale will command the best priced premium of all of the Group 2s, and the Group 3s will be in good demand.

New Crop Planting Season The new Group 1 variety Gallant has now been approved and is on the nabim Group 1 list for the next season. It is higher yielding than Solstice and it really looks like a strong performer and an interesting variety for the coming planting season. One to consider in our opinion.

Marc Rogerson, trader

Oilseed Rape The rally in UK rapeseed prices from late spring was driven by a perceived tightness in the global supply in the world oilseeds complex, coupled with the influence from outside markets. The failure of the Argentine soy crop was the catalyst behind the lift in soy prices on the Chicago Board of Trade as demand was forced to switch to US origins. This additional demand for US beans will result in an incredibly tight old crop US soybean carryout stock and, in addition to the supply issues in the soy market, palm oil stocks in both Malaysia and Indonesia also declined sharply.

A rally in crude oil and an increase in investor confidence also added support to the market, prompting the turnaround from the lows established in early March.

Rapeseed crops are now in the final stages of pod development, but delays in drilling and poor establishment last autumn has resulted in a very patchy UK rapeseed crop. On the continent, crops are generally in much better shape, particularly in Germany and France, but it will be the development of the crop in the Ukraine that will ultimately set our market’s direction in the first part of the campaign.

Last season’s record Ukrainian crop and subsequent 2.4mln/t of imports pressured the market last year and this additional supply pressurised European prices. This season will not see production reach last year’s numbers, but we are now waiting to see just how big the Black Sea crops will be and how badly the global economic downturn has affected the demand side of the market.

Jonathan Lane, oilseed rape trader

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FOCUS ON GLEADELL

GLEADELL AROUND THE COUNTRY… SHOWS GLEADELL RED WHEAT GROWERS

RED WHEAT IN LINCOLNSHIRE

… IN THE NORTH-WEST

Edward and his sons, Tom and Jack Dale, farm 1320ha at Howsham, Lincolnshire and are growing 120ha of Red Wheat for Gleadell as part of the Rank Hovis campaign to produce Hovis bread from 100% British wheat.

… IN YORKSHIRE

... AT IMMINGHAM

Edward explains: “we grew Red Wheat on our farm in Manitoba, Canada for a number of years, so we have a good background in growing this type of wheat successfully, although we are adapting our programme to suit UK growing conditions.”

Their Red Wheat followed winter wheat and was drilled on 23rd March - using their own ‘John Dale’ drill – at a seed rate of 150kgs/ha.

“It did struggle a bit at first with the long dry spell we had, but with the recent rains it is now looking good,” comments Edward. “The crop has had a third of the planned total of 90kgs/ha of N so far but, like most Red Wheats, this variety is taller than UK wheats, - so we are also keeping close eye on crop height with a growth regulator applied at T0 and T1.”

… IN EAST ANGLIA

“Of course, growing conditions in the UK are not the same as Canada – we do not get their harsh winters for a start – so we have gone for a comprehensive spray programme at T0 and T1, have planned for a robust T2 fungicide spray – and in all likelihood we will give the crop a T3 earwash.”

… IN THE MIDLANDS

Edward sums up their approach: “at the contract price we have from Gleadell, we will be happy with a yield of around 4-5t/ha. But we have to get the quality, so we have adopted a careful approach to crop management which meets the recommendations we were given for the variety.”

“Growing British wheat to go in Hovis is a good story and, at the right yield and quality, will give us a good return,” he adds.

… AT AVONMOUTH

… IN THE SOUTH

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DISCLAIMER: Prices quoted are indicative only at the time of going to press and subject to location and quality. Gleadell Agriculture cannot accept liability arising from errors or omissions in this publication.

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