In the first week of September, like last year, we still had about 30% of the spring barley and winter wheat left to harvest. It is true that, unlike last year, in this region we have just had 10 days when it didn’t rain, apart from some early morning drizzle, but there was little sun or drying wind. So, our farmers have been ‘slowly chewing through’ their crops. Many had to be cut at 17% to 19% moisture. On-floor drying systems have been overwhelmed, with continuous flow driers working around the clock.
There are other similarities to last year in that dry grain for immediate delivery to boats or mills made a good premium, with spot values for wheat and barley eclipsing all pre-harvest as available prices. So, like last year, the expected harvest pressure to sell and move grain has not happened yet and I don’t think it will, as once the barn door is shut drilling will become the priority.
The saga I presaged in recent months has continued. The trade was surprised by the United States Department of Agriculture being unusually candid about the Russian wheat and Brazilian maize crop in its August report. More market highs were reached on London and Chicago futures and the French MATIF wheat futures were even more volatile. This is because the French merchants were searching desperately for dry wheat that could be tendered in September based upon milling specification.
The Russian wheat crop started at 85 million metric tonnes but is now heading for 73 million with 78% combined. Brazilian maize is expected to be 87 million, having started at 109 million, and there are similar stories in Canada. With all the background noise about record global wheat and maize plantings, coupled with the dreaded ‘trend yields’, millers and maltsters could be forgiven for failing to take adequate forward cover when the futures markets were £25 lower than they were in early September.
They continued to ‘buy this story’ right up to date, when they have been forced to at least cover their spot positions. However, the warnings from history were there. Several months ago I pointed out the low stock-to-use ratios in key producing countries. One of the reasons that consumers have ‘sleep walked’ into this is COVID-19. The ‘bounce back’ in demand for food, post lockdown, seems to have taken them by surprise.
Even now, some are forecasting a return to ‘demand destruction’ as the new Delta variant spreads to other parts of the world. I cannot see that. Next, it was only two years ago that the world had such a buffer of wheat and maize, which had taken four years to accumulate, that it was believed we could suffer one, if not two, poor global harvests and still have sufficient to prevent big price increases. Last year the world had an average to poor harvest and the UK had a very bad one. This year it looks like the world is having an even worse wheat and maize crop, and while the UK is having a much improved crop, it’s average at best.
The way plantings are going in places like Russia, with poor soil moisture, next year’s winter crop is already under pressure.
Another poor world crop would see the current volatility and high prices continue. So even with the November 2022 UK wheat futures at £175, it would be a brave man who sells that far ahead, especially when the UK market may yet hit market highs in the new year.
With our milling quality being very doubtful we will probably have to import more than our usual 900,000 metric tonnes. Perhaps our feed wheat, of which we will have more, will be passing it at the port on the way out, but that pre-supposes we will have an exportable surplus at all. If our average wheat yield is only eight tonnes per hectare, that will mean a crop of only 14 to 14.5 million tonnes. Assuming that disappears by Christmas, come January to June 2022 we could be importing feed as well as milling wheat, at which point anything goes on price!
Feed barley continues to overachieve on price, as does malting barley, where premiums are much higher than milling wheat. This suggests barley is a better sell than milling wheat. Also, the UK miller has yet to truly assess the quality of our 2021 crop. When they do I think that any hard or soft wheat, with some reasonable specs of Hagberg, bushel weight and some protein will be worth keeping separate. The UK miller will have to maximise the use of home-grown wheat, as the imported alternative from every source will be very expensive.
Regular readers will know my view remains that volatility is here to stay for this year, so if you have missed the last ‘market high’ don’t worry. it will come back again and may be higher than the last peak.