Strong margin forecast for 2022 harvest ahead of 2023 bottleneck

Mill and forage varieties will remain the frontrunners in the 2023 wheat market, but with a narrowing gap between the two, according to new financial modeling from the AHDB.

The scenarios were released by the tax authority in a week when UK feed wheat futures for new crops (22 November) closed at £340.10/t on 18 May, almost double the May 2021 price.

Megan Hesketh, senior crop analyst at AHDB, says a tight supply-demand balance for all grains, exacerbated by the war between Russia and Ukraine, has pushed grain market values ​​to record highs in recent months.

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But input costs have also risen – from July 2021 to April 2022 UK produced ammonium nitrate at 34.5% N averaged £601/t, 138% (+£349/t) above the average for the 2020 season/ 21 .

Looking ahead, farm margins will largely depend on the price paid for fertiliser, predicts Ms Hesketh.

In one of the scenarios, the AHDB has assumed an average price for the UK produced AN 34%, Potassium Chloride and Triple Superphosphate for the season to date.

Second, this season’s record prices for these three fertilizers are used to compare profitability.

Gross Margins for Harvest 2022: Scenario 1
	Gross margin £/ha	yield	£ Issue per £ VC*	rank	Change for harvest 2021
winter flour	1,759	7.95	2.93	1	Unchanged
winter forage wheat	1,617	7.95	2.96	2	on 1
Winter OSR	1,511	3.31	2.89	3	down 1
winter fodder barley	1,341	6.90	3.02	4	on 1
summer malting barley	1,258	5.71	3.52	5	down 1
Oats for winter milling	1.207	6.14	4.54	6	Unchanged
spring barley	1,160	5.71	3.32	7	Unchanged
winter forage beans	1,065	4.20	3.94	8th	on 1
winter rye	1,062	5.90	2.89	9	new entry
Winter triticale	1,044	5.35	3.17	10	new entry
spring forage beans	980	4.00	3.57	11	down 1
Oats for spring grinding	943	5.37	3.29	12	down 4
Spring fodder oats	881	5.37	3.14	13	down 2
Winter Flaxseed	808	2.20	2.58	14	new entry
Flaxseed in spring	730	1.90	2.78	15	new entry
* £Output (income x price) for every £1 variable cost

“Perhaps not surprisingly, given strong global wheat stocks, UK feed wheat futures support that milling wheat and feed wheat outperform in both scenarios, although the difference in price paid for fertilizer makes a big difference in gross margin,” emphasizes Frau Hesketh out.

Gross Margins for Harvest 2022: Scenario 2
	Gross margin £/ha	yield	£ Issue per £ VC*	rank	Change for harvest 2021
winter flour	1,561	7.95	2.41	1	Unchanged
winter forage wheat	1,449	7.95	2.46	2	on 1
Winter OSR	1,346	3.31	2.40	3	down 1
Oats for winter milling	1.207	6.14	4.54	4	on 2
winter fodder barley	1.205	6.90	2.51	5	Unchanged
summer malting barley	1.165	5.71	2.97	6	down 2
spring barley	1,067	5.71	2.80	7	Unchanged
winter forage beans	1,034	4.20	3.63	8th	on 1
winter rye	952	5.90	2.42	9	new entry
Winter triticale	950	5.35	2.65	10	new entry
spring forage beans	949	4.00	3.31	11	down 1
Oats for spring grinding	858	5.37	2.73	12	down 4
Spring fodder oats	797	5.37	2.61	13	down 2
Winter Flaxseed	706	2.20	2.15	14	new entry
Flaxseed in spring	656	1.90	2.36	15	new entry
* £Output (income x price) for every £1 variable cost

The Milling Wheat Premium figure for the 2022 crop uses an average for the 2021/22 season to date – higher than last year due to the current tight supply and concerns over milling wheat availability.

Milling wheat gross margin therefore looks attractive for the 2022 crop, says Ms. Hesketh.

Rapeseed follows closely behind, but new crop (22 November) prices remain below previous highs set in May 2021 as global supply is expected to improve next season.

However, crush demand is also likely to be stable, which could create a tense balance in the first half of the fiscal year.

Gross margins for the 2022 crop
	Gross margin £/ha	yield	£ Issue per £ VC*	rank	Change to Harvest 2022 Scenario 1
winter flour	1.202	7.95	2.18	1	Unchanged
winter forage wheat	1,193	7.95	2.30	2	Unchanged
Oats for winter milling	1.155	6.14	4.39	3	On 3
Winter OSR	1.108	3.31	2.24	4	down 1
summer malting barley	960	5.71	2.73	5	Unchanged
winter fodder barley	941	6.90	2.27	6	down 2
winter forage beans	859	4.20	3.18	7	on 1
Oats for spring grinding	846	5.37	2.83	8th	on 4
spring barley	837	5.71	2.51	9	down 2
spring forage beans	782	4.00	2.90	10	on 1
Winter triticale	766	5.35	2.43	11	down 1
winter rye	751	5.90	2.20	12	down 3
Spring fodder oats	748	5.37	2.62	13	Unchanged
Winter Flaxseed	525	2.20	1.91	14	Unchanged
Flaxseed in spring	496	1.90	2.09	15	Unchanged
* £Output (income x price) for every £1 variable cost

For the 2023 crop, costs are likely to remain high and margins are likely to come under pressure compared to the 2022 crop.

But using a five-year average premium to calculate milling wheat prices, the AHDB predicts that premium could rise if milling wheat balances remain tight next season.

In the modeling, milled oats performed better than winter oilseed rape for the 2023 harvest because fewer fertilizers were used to reduce variable costs.

It also suggested that winter canola fringes are likely to remain favorable for the 2023 crop, but growers may be put off by the challenges of yielding the cabbage stem flea beetle.

For cover crops, forage beans and winter triticale should provide a higher return on cash spent on variable costs.

“The legume market can be volatile at times, but the crops require lower inputs and benefit from the fields through nitrogen fixation, which should be considered in another high-cost year,” says Ms. Hesketh.

Current prices

Markets saw some price corrections in the week ended May 18 following UN efforts to restore Ukrainian grain supplies and Russia’s forecasts for ample supplies.

Wheat price fell this week by £25.40/t to close at £333.10/t, while futures contracts for new crops (November 2022) closed at £340.10/t for a loss of £11.40/t. t corresponds.

Both contracts followed declines seen in wheat contracts in Chicago and Paris.

Paris rapeseed futures (August 2022) were down €44.75/t (£37.96/t) to close at €831.25/t (£705.08/t).

The November 2022 contract closed at €819.75/t (£695.32/t), a similar drop of €41.50/t (£35.20/t) from Tuesday’s close.

News that Indonesia will lift its palm oil export ban from Monday (May 23) is putting price pressure across the oilseed market, and Germany is also introducing legislation to end the use of food-based biofuels by 2030.