Casting doubt on the figures

Writers Posted 02/11/17
There has been a number of pronouncements about crop sizes in October.

In the UK, DEFRA came out with what looks like a high wheat figure, of 15.1 million tonnes; the NFU suggest a more modest 14.2 million tonnes; Openfield think its between the 2, circa 14.6 million.

The United States Department of Agriculture (USDA) has contrived to paint a bearish picture for world wheat increasing production by six million tonnes but also forecasting all time record stocks at the end of June 2018.

In times gone by, these pronouncements would have been accepted as ‘gospel’, but in the modern era of ‘fake news’ and ‘post truth’, the cynic in me has been drilling down below these face values. The USDA have made some broad brush assumptions. I get that Europe is up on wheat production, it had to be after last years disaster in France. But India? I doubt very much that a country so challenged with adverse weather, dodgy storage and logistics could have increased its harvested wheat crop.

There are huge question marks over the southern hemisphere. It’s already acknowledged that Australia is below its record 33.5 million tonne wheat crop last year to 21.5 million at best. Argentina and Brazil are suffering badly from wet weather, affecting maize crops also. So it’s too soon for this un-harvested South American wheat to be included in this world surplus.

The world maize balance sheet has changed a lot. For the first time since 2010/11, we will consume more maize in the world in 2017/18 than we will produce. Year end stocks will be 26 million tonnes down. We have stocks for 69 days world usage. That’s OK until you look at where they are! If you ignore stocks held by China (and lets face it they are unlikely to let the west have any if we needed it); and America – whose stock is small because 40% goes into ethanol production – you are left with only 45 days supply to feed the world.

That is perilously close to the low stocks we had when the maize market took off a few years ago. The USDA have softened this by increasing its yield estimates for 2017/18 by six million tonnes. Within that the USDA is relying upon that bastion of statistical integrity Nigeria, for 3.5 million tonnes. This means dependency upon South America – where there are already big weather problems – and the Black Sea. The EU has a smaller maize crop, lower stocks, but increased demand, so you do the maths. It will need every tonne of the possible import levy free maize from Canada and the usual Black Sea quota.

Despite the bearish backdrop, the UK remains in a good place for now. Our wheat price is still closer to import parity rather than export parity. Weak sterling has played a big part in this, remaining around 87/88p exchange rate to the Euro. Farmers are more interested in planting than selling. The USDA report took £3 off the UK wheat futures but that has not sparked much selling. Feed barley remains well placed, it’s held its price while wheat has fallen so I repeat, barley wants selling, especially with the large volumes being rejected from malting as I am sorry to say that rejections will increase as we move through the winter.

To sum up: the bearish USDA reports have driven the hedge funds to go further short of wheat and maize. Russia and the Black Sea countries have carried on being the cheapest sellers. We have the benefit of being ‘off shore’ in Europe with reasonable internal market prices being maintained. Just now – USDA figures notwithstanding – world concerns over harvesting and planting are preventing prices falling; but that cannot be relied upon indefinitely. Neither can weak sterling. Our wheat supply and demand feels tighter than the DEFRA 15.2 million tonne crop would suggest. But I would keep selling feed barley and milling wheat, just in case.

Lastly, I thought it was April fools day when I heard Robert Mugabe had been appointed a global ‘good will ambassador’ by the World Health Organisation. Judging by his performance in his own country, I would suggest that he would be to world health and goodwill what King Herod was to child minding! Alternatively he might be invited to go to Spain to oversee free, fair and democratic elections in Catalonia, if required!


Tweets from @southeastfarmer