Over March and April we have seen the UK wheat futures go up and down £5 on two occasions.
That may not sound like much but when you have endured the Somme like trench warfare of unchanging or slowly eroding market prices, which we have since harvest, these spikes are a blessing indeed. One of the three out of five decisions that I hoped to get right involved oilseed rape.
During April it climbed above £25 per tonne because of two recurring themes, which I have been writing about for some time: firstly, weak sterling and secondly lack of physical seed. When the £/euro exchange rate was about 72p in October, I was always sure the Brexit debate would drive sterling lower and sure enough it reached more than 80p in April. This alone was enough to send rape values soaring – they were £25 up at one point – but with less than five percent left unsold the physical shortage cannot be denied, even when sterling fell back to only 78p this week.
The problem is the trade and some farmers have become so conditioned to these flat markets that they don’t know what to do with the spike when it happens. If you have old crop rape left, that’s easy – cash it in now. It will help to make up for some of the other things you were not able to sell at a margin. Likewise, sell some forward for next year: it’s traded at £280 for March 2017 with bonus that’s £300 plus, so happy days.
Help always comes from the most unexpected source and while the big wheat producing areas, especially in the northern hemisphere, have been enjoying a pretty good winter and establishment, things have not been smooth in the maize and soya belt of South America. Argentina is going through a terrible rain affected maize harvest which has now knocked onto their soya crop which is only a few weeks away. I have seen pictures of combines bogged down and really poor quality sample of maize and beans.
Now the same huge hedge funds who have made a killing being short of wheat all year have been panic buying back maize and soya futures and this has had a knock on effect on wheat, to a much lesser extent. Conversely Brazil has a drought affecting its maize crop. But we must not get carried away. The biggest sobering factor which cannot be ignored is world stocks. At the end of next month, June 2016, it is estimated that the world will have 239 million tonnes of wheat and 209 million tonnes of maize with a stock to use ratio of 25% plus. We have never seen the like of this before.
It means that even if you did have a big setback with the world wheat or maize crop, it would be 2017 before you saw any really big price changes. So my advice has to remain, set some sensible targets on feed wheat base – say £110/£115 pre Christmas, £120 April/May 2017 – and don’t be afraid to sell into any rise which gets you some of that.
Rape is a joy to sell by comparison, but be bold with that. You see, we have a once in a life time event, the referendum on the 23 June. We cannot know the outcome, but what we do know is that after 23 June, the exchange rate – and the market – will not be the same. If we decide to leave the European Union, they would be entitled to impose an import tariff – which is currently £10 per tonne – on non EU grain. So in theory there could be a £10 reduction on UK grain that has to go into the EU.
If we decide to stay in, the pressure comes off sterling and it could go back to 71/72p exchange rate, so that would reduce prices, even rape. So I think you need to be a bit less conservative about forward selling, especially over the next six weeks before the referendum. Openfield and the industry have done a good job shifting the UK wheat surplus. It seems the 2.8 million tonne surplus will be exported by harvest – despite Brussels being down 10% on export licences. This would be really good if it were not for the huge stocks hanging over the market. Also don’t forget that some of the big world wheat importers are now a lot closer to their own harvests.
I have just been reading Winston Churchill’s war diaries. He had worked out before the war ended that the United States of Europe as the forerunner of the EU was the best way forward, not least to defeat communism. So if it was good enough for the greatest Briton of all time it’s good enough for me.