Again it’s not really about shortfalls of wheat, maize or soya beans: how could it possibly be, with the United States Department of Agriculture October report being still so bullish about good crops?
Sure, maybe America won’t quite get the stellar yields of maize after all – but it should still be a record crop. Wheat was always going to be average and soya is about 70% combined. But, bad weather, including early frost, has created problems, delayed combining and impaired some quality.
The background, as I have been reporting for months, is that all of the big trading houses and hedge funds have been short of wheat, maize and soya. It’s too simplistic to say that a delayed harvest, with everyone short in the states, has caused the problem, but it is probably the reason why 25,000 tonnes of UK wheat is now making its way from the UK to South Carolina.
You have to ask how can that possibly work when they have a normal biggish wheat crop of their own. But it’s all down to logistics. Moving wheat from the mid west to the east coast of America is challenging. So, it’s more a case of there maybe plenty of wheat, but is it in the right place, at the right time, at the right price? And, is it dry yet?
That is the type of dynamic which has been driving the UK trade in the last few weeks. Will it last? is the next question. Well, I am glad that last month I ducked the feed wheat question by saying “I think I will leave feed wheat up to you.” I honestly did not see spot wheat going up £12 per tonne, but then I didn’t see the £12 drop coming, when it fell to only £100 in the first place.
If you try and step back from this for a moment, Russia and the Ukraine have done enough exports for the time being. So with the cheapest sellers out of the way, the UK could be the next cheapest in line, and as we saw with the sale to America, UK wheat has been cheap enough to compete with any origin. But, if our market was to rise much more I doubt we would be competitive.
Cheap £100 ex wheat has accelerated export sales, but they are only forecast to be 800,000 metric tons by Christmas. We will have to keep that going, at least to eat into the possible 3.5 million tonnes surplus. But the higher our feed wheat price goes the less competitive we become, so it’s catch 22 really. Therefore, the answer is, with a £12 rise you should be selling some into it, and yes, it could go higher yet.
On the Chicago wheat futures market, the low point was 25 September. That was thought to be too low and needed a correction. It’s gone up by 70 cents per bushel since then, which is more than an over correction. We must not forget that there are some big crops out there in the world, and while for a short time demand has exceeded supply (eg American wheat), logically that cannot go on when you look at the world supply and demand figures.
Globally, we know there are some other issues. Australia, Canada and South America are going to have smaller crops of cereals, canola and soya beans. But we knew that anyway, and it will be the end of December before we really know what has happened in the southern hemisphere. Russia reckons its planted winter wheat crop is going into dormancy looking the worst it has been for five years. But that can be corrected by more spring plantings.
UK barley is progressing quite well and being overtaken now by feed wheat, and you can still wait to sell when a big boat is being loaded. Malting barley has improved in value. Although the domestic maltsters in the east and north are about fully bought until probably next June, Openfield continues to push ahead with much needed exports. As Europe makes some third country sales to China and South America, we are able to replace some of that tonnage into near Europe, so that should keep the market well supported.
On oilseed rape, if you missed the early market, it’s still worth holding for sale in the new year, just in case there is a bigger problem with South American soya. Also, as we run down to the election, I expect sterling to come under pressure as all sorts of unlikely would be coalition partners start to frighten the financial markets with what they might do if they ever get a share of power.