Well there have been a few game changers in the last month. Until the middle of August wheat and spring barley carried on where winter barley had left off, with many new record yields being recorded from farmers in the South and the East. It is a miracle of nature that such an unpromising growing season – dry, cold spring, reduced rainfall from January to June, high temperature in Summer – could have produced such quantity and quality.
However, for the 40% or so that was not harvested – much of which is still in the field on 1 September – the outcome is not so good. Both yield and quality has now suffered. I know a lot of farmers cut malting barley and milling wheat first, securing their quality crops. Others are not so fortunate; post rain barley has been spoiled with pre germinated and split grains and fusarium.
The quality and volume of the early harvested barley is so good that maltsters can afford to discard post rain samples. Milling wheat already had some issues with variable protein because of yield dilution, so lower hagbergs and bushel weight problems should help to keep milling premiums up.
China was the next game changer. I guess we all knew that its alleged seven to nine per cent growth could not be sustained; and that some over correction would be necessary; we just didn’t expect it to happen all in one day. If you try and ignore the “black Monday” effect upon financial and stock markets, the biggest problem, which could affect the UK, is a potential reduction in Chinese barley imports.
While we cannot trade direct with China, France in particular and Denmark, export a large chunk of the European Union barley surplus to China. It still has the demand for pig production, but it may not have the cash, so in the interim it has slowed the trade down by imposing import permits. Personally I expect the French traders to get around this, but it has reduced French – and therefore UK – export values for the time being.
The UK of course relies mostly upon Saudi Arabia, and other Middle Eastern markets to dispose of its barley surplus. But it’s big shipper business, and if French or Black Sea barley is cheaper we could miss out. Despite the Chinese set back to the international barley trade, I remain confident that UK barley will be in demand for export, but it maybe later – e.g. January/March rather than pre Christmas.
The August United States Department of Agriculture (USDA) report could have changed the game but it didn’t. As we have come to expect, they ignored all local well informed opinion. They increased the world wheat crop forecast, and while they did acknowledge the maize crop would be less than last year, they found some extra stock from 2014 to carry in. But they agreed world barley production was down, and the demand was up, so not all bad news.
But it did not stop the hedge funds rushing for the door, liquidating long positions with huge losses. It looks like the funds are having another go at recouping their losses by selling wheat short again now; they never learn. There is a bit of a disturbing trend with wheat crops growing every time they are mentioned.
The International Grain Council reckon total world grain stocks are at a 29 year high – we really didn’t need that piece of unsolicited information. The delayed harvest means it will be some weeks before we can all agree on what we have had so far in the northern hemisphere.
My impression is that in Western Europe the crops have been good, average to a bit above. The UK wheat crop started with expectations of 14.5 million tonnes. That went up to 16 million before the rain came, now it’s falling back again. We know for sure that France, is well down on maize and Europe should be 15 million tonnes less than last year. That must be good news for UK feed wheat which should take up some of the maize inclusion in compound feed.
The European Commission carried on where it left off last year, issuing more than enough export licences for wheat and barley so far. But while there are the usual cheap Black Sea origins about, the UK is not competitive, and sooner or later they will run out.
Despite all the bearish news, and harvest pressure, the November LIFFE wheat futures only fell £6 in the last month. Last year the all time low has not hit until the last week of September. I think we should avoid that this time around. You see, basically the trade is still short of dry wheat. By the time that it’s all sorted, I have a feeling that the harvest pressure won’t have materialised at all. Whatever the surplus turns out to be, the UK wheat crop has become harder to dispose of in the last two weeks.
The one thing which has gone in our favour is currency. Briefly the knock on effect of the “great fall of China” is it’s unlikely that UK interest rates will rise at all in the next year: hence sterling weakens. This is also good news for your single farm payment calculation.
In summary: last month I said “it will get worse before it gets any better” and it has for wheat. But dry milling or biscuit still command a decent premium even for spot, so sell some if you have it. Barley remains a good, but longer term bet. Likewise oilseed rape can only improve: Openfield are already exporting to Europe, who need all of our surplus, and currency is helping this a lot.
It will be interesting to see if the USDA back track on global wheat or maize crops this month. If not, Australia is the only significant wheat crop left where disaster could yet affect world supply and demand. Otherwise it’s going to be a long hard winter, grinding out export sales to shift the UK wheat surplus.