The bad news is all attributable to currency and the sterling/euro exchange rate to be precise. It was 72.5p a month ago, but today it’s just over 70p, but it’s been down to 69p last week.
This has removed about £5 from feed grain prices and £15 from oilseed rape. The good news is that despite the adverse currency, on some days UK feed wheat is export competitive with any origin and Openfield has continued to take every export opportunity. So, the international value of feed wheat is actually unchanged, but ex farm UK prices fall when the pound strengthens. Is there any hope that the sterling/euro exchange rate could go back to 72p/74p? Well, I think there is.
My theory is the UK has tended to follow the United States dollar, but there is about to be a parting of the ways. You see the American economy is looking up: good employment figures means they are almost certain to increase interest rates for the first time in ages in December. The UK on the other hand is unlikely to see a rate rise until 2017. We are more likely to follow the euro now.
Also, I believe in January there will be an announcement of the European Union referendum date: the mere thought of Brexit will cause a run on sterling, I hope. Meanwhile our grain markets will move sideways at best. The 2015 harvest game is all but over. El Niño has fizzled out but could possibly cause a problem in South East Asia with the palm kernel harvest, or Soya in South America.
So we look to the next crop for potential issues. So far, you only have dry planting conditions in Ukraine and parts of Russia (almost the same place again) which will mean less winter plantings. There is talk that Ukrainian wheat production could drop from 27 million tonnes this year to only 17 million next year. But we had all this same time last year, and they made up for it with extra spring plantings. India is the only other potential new crop scare game in town. They are 28% down on their wheat plantings. But who cares I hear you say: they are often late planting anyway. As you can see I am scraping the barrel looking for fresh grazing for the bulls in the market.
If things weren’t bad enough, the United States Department of Agriculture delved back three years to discover an extra 34 million tonnes of maize in China from the 2013 crop. Found in a large cave along with Shergar and Lord Lucan no doubt! But, it just adds to the ever burgeoning world stocks of wheat, and next soya, all likely to be records by the end of this season in June 2016. The slight relief is barley and rice stocks should be lower.
Openfield is playing its part as the UK leading shipper with 60,000 tonnes of feed barley being loaded now for Saudi Arabia. It has already shipped a large proportion of the slim 90,000 tonne UK surplus of oilseed rape together with 10 cargoes of malting barley. There is a big difference of view on the size of the UK wheat surplus. We are working on a crop figure of 16.14 million tonnes.
Also we hold the view that having carried in 2.4 million tonnes of wheat to this harvest year, it’s reasonable to assume a similar figure is needed to carry out at the end of June 2016, to give sufficient old crop cover until the new harvest comes in. On that basis we have a surplus of about two million tonnes. Others say up to 3.5 million tonnes: we think two million tonnes is bad enough without looking for any more. You never know for sure, but UK wheat exports could possibly reach one million tonnes by the end of December. That would certainly give some optimism about shipping the rest by June. But to have a hope of doing this, we have to keep booking the feed wheat buyers when they appear, and so do you. In this column a few months back, I pointed out that four tonnes per acre at £101.25 is the same gross margin as the pre harvest expectations of three tonnes x £135. So there is no excuse for not selling; even if you only sell your surplus to normal yield.
Don’t panic as far as oilseed rape is concerned. You will just have to hold it until sterling weakens, which it will in the new year. Meantime, the carry which gives you £120 for new crop feed wheat is not justified, because of the world stocks, so you should be selling some of that now. Wishing you the compliments of the season, may you be well on the way to producing as big crop as last year, just don’t forget to sell some forward.