Highlights

Dry weather conditions prevailing throughout the winter grains crop cycle, along with warmer than average spring temperatures have driven down yield expectations in Spain. Overall grain production is projected to be below historical average levels. The strong demand by the domestic livestock industry, along with limited pasture availability will contribute to increase the country’s grain import needs. Changes in the feed formula along with stock use may partially alleviate the grain shortfall.

General Information

Official statistics show a slight decline of winter grain plantings in MY2017/18 confirming the long term trend of increasing tree crops at the expenses of arable crops and/or fallow land. Area planted to corn in is projected to continue to decline for the fifth consecutive year due to poor margins, irrigation water restrictions in some river basins, and to a lesser extent, by crop diversification established by European greening requirements.

The main grain crop growing regions in Spain went into winter with well above average level of biomass, and stayed above average until to the beginning of April, when yield expectations were drastically revised down due to the prolonged absence of precipitation since the beginning of the crop cycle. Warmer than average spring temperatures affected crop development. Scattered showers throughout May and the alternation of colder and warmer days were not sufficient to make up for the drought earlier in the growing season.

The below average grain crop, coupled with the strong demand by the domestic export-oriented livestock industry along with limited pasture availability will boost the country’s import needs throughout MY2017/18. Changes in the feed formula and using last season’s stocks will partially alleviate MY2017/18 grain shortage.

Precipitation and Temperatures

Lack of precipitation in September, delayed early plantings as soil was too dry. Rains at the beginning of October allowed for proper planting for rye, triticale and wheat. Barley plantings were delayed to excessive precipitation in the planting season. Winter conditions were extremely dry, which may have limited rapeseed area expansion, but did not raise concerns over potential yields, as the winter dryness could contribute to healthy root development. Grains entered spring in excellent condition throughout the country.

All eyes were then on spring precipitation, as it would be critical to determine the crop size. Spring precipitation so far has been insufficient to ensure proper crop development, to restore soil humidity or replenish water storage in dams. Showers in late-May arrived too late to make up for the anticipated grain crop loss.

Warmer than usual spring temperatures, combined with lack of precipitation, have significantly reduced yield potential. The reduction in average temperatures registered in early May could contribute to prevent from additional yields reduction in the northernmost grain producing regions.

Water Reservoirs Situation: Soil and Dams

Spain boasts a large water storage system that contributes to alleviate the recurrent drought periods. However, only thirteen percent of Spain’s total agricultural land is irrigated. Spain water storage system latest reports (May 23rd, 2017) indicate that there are 32,344 cubic hectometers of water stored in dams, which represents 57.8 percent of the total storing capacity down from the 75.2 percent registered in the same period of the previous year. While there is water for irrigation and other purposes still available, in certain river basins, farmers are already facing some restrictions in the amount of water allocated for their crops. This may have also influenced planting decisions, as farmers may have chosen less water-intensive spring crops.

Soil moisture and subsurface moisture are at critical levels, in particular in Spain’s central grain basket.

Vegetation index

In the four main Spanish grain growing regions went into winter with above average level of biomass, and stayed above average until to the beginning of April, when a sizeable to average grain crop was still projected.

At the beginning of April NVDI suffered a sharp decline in the four main growing regions as a consequence of the water deficit and warmer than average temperatures registered, which negatively affected the crop development.

In Andalucía, where the grain crops harvest has already started, and in Aragon, the NDVI seems closer to average. In Castile and Leon and Castile-La Mancha, the two main central grain producing regions, the vegetative vigor is well below last season’s and average levels and grain plants show signs of water stress.

Planting Decisions

Area devoted to total winter grains remains fairly stable compared to the previous season. However tree crops are following a long term expansion trend, at the expenses of arable crops area.

Total wheat plantings were reduced in MY2017/18. Durum wheat area has declined as the price differential to soft wheat does not cover the higher crop cost. Barley and Soft wheat area is also trending down, due to competition from tree crops, in particular new olive grove plantings in Southern Spain, but also by tree nut plantings in the Spanish central plateau. The so-called minor grains (oats, triticale, rye) area continues to grow for the third consecutive year, most likely as a consequence of greening compliance implementation.

Area planted to corn in is projected to continue to decline for the fifth consecutive year due to poor margins, and to a lesser extent by crop diversification established by EU greening programs. However, there are some corn growing areas where area planted to corn is extremely inelastic as few or no alternatives are available.

Area planted to sugar beet alfalfa/vetches area is projected to partially replace corn plantings in MY2017/18. In some regions, rice is an alternative to corn. However, the initial investment required for rice cultivation, the unfavorable market conditions along third countries competitions and difficult crop management due to the lack of crop specific authorized active matters would prevent rice area from growing at the expenses of corn. Other alternatives to corn that farmers are putting in place in irrigated areas include less water demanding crops such as sunflower, high protein wheat, barley or even fava beans.

Oilseed production in Spain is virtually limited to sunflower. Area planted to soybeans or rapeseed is comparatively small, despite the steady growth of rapeseed plantings over the last few years. For MY2017/18, in the absence of official data, FAS Madrid forecasts a decline in area planted to sunflower as a consequence of the poor margins. Sunflower in Spain is mainly grown in non-irrigated land and depend largely in subsoil humidity for its growth. Poor soil and subsoil humidity conditions may have further discouraged spring plantings

and negatively affected yield expectations. Nevertheless, the above mentioned water restrictions may result in corn area being partially replaced by sunflower plantings under irrigation.

While area planted to rapeseed in Spain is still small, a continuous increase in rapeseed area has been reported year after year. A slight decline in area might have taken place as the consequence of the difficulties in the fall planting season. Nevertheless, biodiesel demand in neighboring countries such as France or Portugal, and to a lesser extent greening compliance, are seen as the main drivers for this crop’s area growth.

Crop Development

The combination of limited water supplies, warm spring temperatures and windy conditions in some areas has provoked plants’ hydric stress and is anticipated to result in a well below average winter grain crop for most of Spain’s grain growing regions. Showers in May came in late for the large majority of the grain producing regions. Spanish harvesting operations start in late May to early June in the southernmost grain growing areas, such as Andalucía, and then move up North. Part of the grain crop is being harvested for hay or used as pasture, which further reduces grain yielding potential.

Barley is the largest grain crop in terms of area in Spain and the majority of it is grown in the Central and Northern half of the country, where the most unfavorable conditions.

Only the Center-North of the country, an area highly specialized on soft wheat production, still holds some recovery potential. Soft wheat looks to have better yields expectations compared to barley as the wheat crop cycle is delayed compared to barley.

As the large majority of the corn is grown in irrigated conditions, final yields are expected to remain stable. However, the reduction corn plantings will also contribute to force the country’s total grain production down.

In the absence of official production statistics by the Ministry of Agriculture, Food, Fisheries and Environment for the MY2017/18 or industry numbers, FAS Madrid estimates a significant decline in total winter grain output, which may amount to just over 14 MMT, 5 MMT down from the nearly 19 MMT reached in the previous bumper crop season.

While it is still too early in the season to forecast sunflower crop production levels, the lack of spring precipitation will likely prevent average yields from being achieved as sub superficial water reservoirs are rather limited.

The large majority of rapeseed (75 percent) is grown in non-irrigated land, and the crop cycle coincides in time with the grains. While good output is anticipated for rapeseed grown in irrigated conditions, Uneven crop establishment due to the dry conditions during the planting season in dry land. As in the case of grains, the lack of water and the warmer temperatures may have also contributed to a significant reduction in yields.

Ending Stocks, Consumption and Trade

Depending on the size of the domestic grain crop, the livestock sector demand and the price relations between the different ingredients comprising the feed formula, Spain has an annual grain deficit of between nine and twelve million metric tons. Even in years when domestic grain supplies are ample, the Spanish grain production is not sufficient to meet the country’s needs for feed, food or biofuels.

In MY2017/18, compound feed production is expected to remain strong as increased opportunities in export markets continue to drive feed demand.

On top of the sharp production decline anticipated, the limited pasture availability will result in increased import needs compared to the previous season. Consequently, Spain will be forced to import in MY2017/18 a significant amount of grains to meet its shortfall. However, lower grain prices throughout MY2016/17 encouraged farmers to build up stocks. In the light of poor crop expectations for MY2017/18, domestic grain sale operations have slowed down, as old-campaign stocks are being stored, which will partially make up for the new season’s shortage.

As far as the composition of the feed formula is concerned, after the bumper crop registered in MY2016/17 allowed for an extensive use of domestic wheat and barley and still permitted stocks being built. As the aftermath of the short crop anticipated for MY2017/18, Spanish livestock growers will be feeding significantly less barley to their animals. Increased corn imports and, to a lesser extent higher wheat imports, will offset the production decline. Sunflower cake imports originated in the Black Sea Region played an important role in terms of protein and energy supply for compound feed in MY2016/17. Its extensive use is forecasted to continue throughout MY2017/18, which would continue to partially alleviate grain import needs.

In regards to bioethanol use, there are three grain-based bioethanol facilities in Spain whose total grain consumption may amount to nearly 1 MMT. The inland plant has been in a production halt since April 2016 as its margins are tighter (as input and output have to be transported from and to port locations respectively). The plants in port locations are currently running at full capacity. While in MY2015/16 and MY2016/17 some substitution by wheat took place, corn is anticipated to be the preferred grain in MY2017/18. Corn consumption by other grain processing industries, such as isoglucose production, is anticipated to grow in MY2017/18 in response to the EU sugar quota phase-out.

Policy

As of MY2015/16 due to the CAP reform implementation, the Basic Payment Scheme (BPS) has replaced Single Payment Scheme (SPS). The Basic Payment, is not crop specific, hence, farmers would receive this payment regardless the crop they grow. Also, a large part of the support received by farmers (30%) is linked to greening measures. To comply with greening measures, crop diversification has to be observed. Farms between ten and thirty ha must grow at least two different crops, and farms over 30 ha must grow at least three different crops in their arable land. This policy may ultimately introduce slight variations in areas where monoculture is practiced. Other option for green compliance includes the cultivation of nitrogen fixing crops. Since 2017 soybeans and peanuts count as nitrogen fixing crops for Greening compliance.

In addition, specific payments allocated to protein crops (peas, bean, sweet lupin), legumes (vetch, lathyrus cicera, lathyrus sativus and non-irrigated alfalfa) or oilseeds (sunflower, rapeseed, soybean, camelina and cartamo) exist. Nevertheless, support levels rank between 40 and 60 Euros per hectare, which will not likely determine farmers planting decisions.

Economic Impact of Drought Mitigation Measures

Drought is the most important climate hazard for crops in Spain, given the frequent occurrence of dry periods. A government supported insurance system covering drought hazard is in place to mitigate the effects of drought in agricultural production. To complement this insurance, the Spanish Ministry of Agriculture, Food, Fisheries and Environment is working on a special set of measures to diminish the economic impact of the dry conditions in farmers’ income.