I am writing this on the 20 February: by the time you read it the the United States Department of Agriculture (USDA) should have held its outlook forum on world crops and DEFRA will have given its latest update on the UK balance sheet.
Also it’s the Chinese new year, so will it be the year of the “bull” or the “bear”? On old crop the “bear” seems to be winning as far as world wheat goes. Monthly stocks are still building – Russia with a seemingly inexhaustible supply of wheat, from its second ever record crop; and Europe still well off the export pace, with only 50% of its third country wheat exports achieved so far. Despite all this the price of wheat in the UK has fallen a lot less than in Europe, and in parts of the north of England it has maintained its value.
Unfortunately for places like Kent, you still have a disparity of about £18 between its feed wheat price and the north or Scottish Borders. If the demand continues, it won’t be long before the coaster freight from Kent to the north would calculate. While the feed compounding demand has been very good, the real elephant in the room on demand is the second ethanol plant which has been closed for three months now.
Based on usage of say 60/70,000 tonnes of wheat per month, that’s about 200,000 tonnes which should now be removed from the demand side and added back to supply. Of course if it stays shut for the rest of the year, well, just do the maths.
That apart, as I have said before, the UK this year will be a net importer of wheat. That gives us greater control over our market. There have been some excellent baking results for UK wheat. This means more of the crop is being used by our millers and more importantly imports can be reduced. So despite the cheap wheat sloshing around Europe and the Balkans, the UK is still managing to keep it at bay, for now.
Barley couldn’t be more different. To start with, the world is bullish to barley. It is accepted that we will use more barley in the world this year than we have produced. As a result, world barley stocks will have fallen by 4.5 million tonnes at the end of June 2018. This is a very low stock to use ratio.
In different parts of the world, barley is now trading at a premium to wheat. I think this could happen in some parts of the UK. So for barley growers and long holders this is very good news – especially when you consider the amount of borderline quality malting barley we still have to move. There cannot have been a better time to sort out the replacement cost of malting barley with malting falling in price – because of sterling appreciating by 4% since Christmas – and feed barley going up in price. And all this going on when we still believe there is a UK surplus of about 500,000 metric tonnes to dispose of before harvest.
They say that barley demand in the world is “inelastic”: it’s mostly connected with camels. Right on cue, out of the blue Saudi Arabia have just bought nearly one million tonnes of barley for April/May shipment. This should keep our old crop barley market firm for a while, but don’t forget to sell it. So will the Chinese new year bear come out on top? It may on old crop wheat but the bull is winning hands down on barley.
However, new crop may just be starting to look a little different. Sure the USDA will maintain its mantra on record 2017 wheat crops coupled to record stocks at the end of June. Hedge funds have bought into all this by taking massive short futures positions on wheat and maize.
But I have been writing about the dry weather in the United States plains for some months. It hasn’t got much better and has started to spread. There is a lot more talk now of the “crop abandonment” figure (that’s where they plant it but have no intention of harvesting it) exceeding last year’s record acreage. La Nina is always being wheeled out as likely cause of mayhem in the Pacific or South Atlantic; and usually it comes to nothing. Apart from the dry US plains, the Argentine soya crops have been hit by drought. The Brazilian soya harvest has been affected by wet weather: this has a knock on affect of delaying the planting of its second maize crop. Eastern Australia is expecting its sorghum crop to be reduced by 30%. These are quite big pieces of La Nina jigsaw and there is still two months of La Nina uncertainty to go.
Closer to home France has planted none of its spring barley crop yet. It’s a big country, so they are getting a little nervous. Mind you we haven’t planted anything in the south either. But that is not unusual and it could probably all be drilled in 10 days of fine weather. This makes all the talk about a seven percent increase in spring barley plantings a bit premature. I will be surprised if we don’t see an international spike in new crop values sometime before harvest. I would prefer to keep my powder dry to be able to sell into that when it comes.