Death by a thousand cuts

Writers Posted 03/03/19
Market nervousness has been compounded by the lack of export information from America.

“Beware the Ides of March” that was good advice for Julius Caesar; which he did not heed. There are similarities with our present prime minister; as more than one ‘Brutus’ queues up to assist with the ‘back stab’ or is it backstop?

Brexit has already diverted too much of our attention from serious trading activity, and cost much in missed opportunities. As I presaged in last month’s article, lower prices were inevitable while all this was going on, and in the last week we have seen falls in the UK and USA wheat futures to market lows for the last seven months.

The market nervousness has been compounded by the lack of export information from America caused by the government shut down since December and uncertainty over whether president Trump, and the Chinese will agree a trade deal or carry on with the phoney trade war. All of this has clouded the normal logic based upon agreed fundamentals, which you should be able to rely upon. Many believe that post a trade deal China could buy several million tonnes of soya, maize and barley.

Closer to home, you have, for the second year running a situation where DEFRA have overstated the wheat planted area for harvest 2018. For the 2017 harvest the overstatement was 40,000 hectares; for the 2018, it’s a massive 108,000 hectares! That could mean we have 800,000 mt of wheat less in the balance sheet than we thought. To put that in perspective, it would change the UK from having an old crop exportable surplus of say 400,000 mt, to having a deficit of 400,000 mt, thus changing us from being an exporter of wheat to an importer, at a stroke. Last year this caused the UK wheat market to ‘sky rocket’ at the end of the season, resulting in over reaction and big wheat imports, which went on to damage this year’s supply and demand. Some say the trade were anticipating this error, and that’s the reason wheat has held its internal value. Certainly you can still make good premiums over the futures market delivered into middle England feed compounders; and you would not be able to if we really had a 400,000 mt surplus still on farm. Unfortunately my gloomy forecasts on barley are becoming reality. With anything from £15 to £20 discount, wheat feed compounders are trying to increase usage but, what we are still lacking is the ‘big boat’ trade to Saudi Arabia. This is strange because the demand to feed camels and goats is inelastic. Maybe the Arabs think that while China is sitting it out, they can afford to let the world market price drift down, which it has on very little trade.

UK malting barley has fallen £25 per tonne in the last month. We continue to ‘change as much water into wine’ as we can, by blending high nitrogen barley onto malting barley export boats. But depending on the Brexit outcome, they may all cease at the end of March. With more downgraded malting seeking a home it’s beginning to look like the queue for the last helicopter out of the US embassy in Saigon at the end of the Vietnam war.

But, take some heart. Grain trading will not stop at the end of March. You don’t have to enter into the new crop – relatively low price – market. The world could not stand another harvest where it lost 30 million tonnes of wheat – without big price rises: and you may see that before harvest, on old crop UK wheat.

We are all suffering a ‘death by a thousand cuts’ while this uncertainty continues. Next month I will do my usual ‘if you don’t want to know the score look away now routine’ on Brexit; but we may know the truth by then anyway.


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