World wheat prices have continued to firm in November and December. Whether in the French MATIF, UK Liffe or Chicago, they have all reached record high prices.
UK May 2022 wheat futures reached £240, creating a £40 differential between May and new crop November. New crop feed wheat prices for November and December have touched £200 ex farm.
We saw high prices in May and June 2021 because UK wheat ran out, but to be able to sell forward new crop feed wheat at £200 per tonne, at this stage of the year, really is a first. In recent months all the existing contract highs have been exceeded, so who is to say that this forward £200 price won’t yet be eclipsed?
Australia was the only major wheat exporter that seemed on track for a better-than-expected harvest, but wet weather in the east of Australia, known as La Niña, came at the wrong time, so they now have quality issues on milling wheat. Bad weather usually affects more than just quality. Indeed, in this case it looks like yield will also suffer. It’s too soon to say, but it was sufficient to spook the market. The prospect of the only remaining big wheat exporter coming up short was just too much for the few remaining bears.
No sooner did the Australian problem drive the market up, than news of a new Covid-19 Omicron variant applied the brakes. The lessons of last year’s lockdown are still fresh in the minds of manufacturers. The possibility of demand destruction, plus some profit taking, brought most futures markets off their recent high points. Some European countries were already going into lockdown anyway.
Demand destruction, if it is to happen again, is very subjective. Recent lockdown history shows that people may stop flying or driving, or even going to work, but they don’t stop eating. For sure, high price alone has not caused any demand destruction around the world. The fundamentals remain: the major exporters of grain have less to sell and stocks are getting lower.
As I have said before, world maize remains a slow burner. It contradicts in various ways. South America could yet bring in a record maize crop and its planting prospects for next year’s crops are very good. Closer to home, Europe produces its own maize, so while it’s in big demand because of the high wheat price, it’s trading at a €40 discount to wheat on the French MATIF futures.
Despite this, Europe’s balance sheet says it needs to import 15 million tonnes of maize, but only 2.5 million of this has been imported so far. So does Europe need it, and where will it come from?
President Biden announced the intention to roll back the €25 tariff on maize exports to the EU from January 2022, but that still leaves the question of whether or not EU and UK consumers can accept it being genetically modified. If that question can be overcome, it may offer a lifeline for compounders and solve the enigma of why maize appears to be cheap on Chicago futures but costs £260 per tonne ex at port or store in the UK.
If this cheaper maize becomes available and is acceptable in the new year, it could cap the price of feed wheat and more importantly feed barley in the UK. Sorry to repeat myself, but with a surplus of 1.3 million tonnes of UK barley, it is defying gravity on price!
By the end of the year about 600,000 tonnes of mostly feed barley will have been exported. On paper that leaves a lot to use before next harvest. For once malting barley is worth its huge £60 premium, but of course malt and beer sales were the first to fall off the cliff when the last lockdown happened and this might be a merciful release for some brewers and maltsters who may be short of stock.
I have written a lot about price but believe it or not it’s secondary to the huge logistic problems in the industry.
It wasn’t so long ago that I was shipping malting barley from the south of England through a Baltic Latvian port then consigning it by rail to a maltings in the Ukraine. That is actually quite a perilous journey, but is child’s play compared to what we have today.
We have lots of good malting barley sold all over Europe, a lot of which is shipped from Rotterdam by barge to maltings in the Rhine, but low water levels in the Rhine have delayed shipments by two months. Then it’s either difficult to find lorries to haul the barley to the port, or to charter boats to the continent, or barges down the Rhine. Then when you get all those ducks in a row, the UK port says it’s got no berthing space!
We have long-term supply agreements with German maltsters desperate for the barley they have bought. On this side we have excellent malting barley producers who are working patiently with us while we sort out this backlog before Christmas. I can only thank them for their forbearance. It really is not about money, it’s logistics and good relationships.