Falls in market price are inevitable

Writers Posted 01/02/19
As far as the grain trade is concerned Brexit is not just the elephant in the room. It’s the whole room!

The government says it is not ‘running the clock down’ to the Brexit deadline. By the time you read this it will only be about 55 days to go! As far as the grain trade is concerned Brexit is not just the elephant in the room. It’s the whole room! Even the domestic market has almost stopped trading beyond the end of March, as end users are declining offers for April, May and June.

Their thinking is, with the UK now having a surplus of old crop wheat and barley, and export buyers not wishing to price anything for April onwards, further falls in market price are inevitable. As I wrote in December, on malting barley it’s been impossible to sell UK export after March, and certainly not for harvest 2019. Our domestic maltsters have also decided to ‘gang up’ and not buy new crop, they are now suggesting, that the UK spring barley surplus of say 300,000 mt will have no export outlet. So even if they have to pay the extra haulage to buy from the south, they are prepared to wait and force new crop values down! We shall see. East Anglia starts with a deficit of about 250,000 mt of malting barley. Also we should not forget that last year it took from January to May to plant the spring crop in the south, so nothing is certain.

With the mild winter, and no really cold weather in the south so far, the ‘lack of forage’ effect is diminishing. The usage of wheat in animal feed has been further reduced, as an extra 200,000 mt of imported maize has replaced wheat. The basis for thinking that the UK has, since harvest, moved from a balanced – or deficit – supply and demand on wheat, to a surplus of 400,000 mt, is the closure of both ethanol plants! Before harvest ethanol production was going to need over one million tonnes, by the end of December the usage was down to 441,000 mt, and that’s the lot. There are rumours that one or even both plants could start again, that would make the wheat market very tight.

Physically, the cash market remains quite strong, there is very little wheat coming on to the market. Although UK futures are very sensitive to every bit of seemingly bad Brexit news (and have recently fallen to market lows) that doesn’t make any more real wheat available, in the areas where its needed! Also you must recall that last May, a similar surplus was wiped out at a stroke by the ministry getting its planting figures wrong! So anything can happen yet.

Barley is more problematical. Latest estimates put the UK barley surplus at about 750,000 mt. That is getting quite ‘chunky’ now. But, against the world dollar price of barley the UK is still competitive for 25 to 60,000 mt vessels. Saudi Arabia and Jordan, still have to come to the market to buy. Maize has also displaced some barley in UK compound feed. Another Brexit factor has adversely affected barley; UK lamb producers rely heavily on exports to France, so flocks are lambing later, so as not to be exposed to the uncertainty of trying to export big volumes of lamb in March/April. So less barley is being used in these rations. Openfield has a very large programme of malting barley exports to ship by the end of March. We have loaded 12 malting barley boats since the end of December.

On the plus side; barley inclusion in animal feed is running at 8.3%. It was 9.39% last year, so there is room for that to improve. Also there is still a huge tonnage of feed barley being traded farm to farm, which is unquantifiable. The latest export figures on UK barley; up to the end of November, are 381,000 mt. So there are another three months to catch up. Again barley is holding its price ok, but with a shorter fuse than wheat, I think it’s worth selling now.

The oilseed rape market is also hanging on to its value quite well. Were it not for the looming Brexit deadline, I would probably not sell. But the price in the low or mid £320’s – with oil bonus of circa £30 – is as good as it’s been for most of the year since harvest. Bearing in mind how wheat, and barley have fallen in real terms, oilseed rape looks like a sell. It seems less affected by Brexit than other crops because its tight, and will probably be used domestically.

Last thoughts on Brexit. Parliament has rejected the deal which would have enabled the UK to withdraw with good grace. The government will not vote for a general election, or second referendum. That means we either crash out on the 29 March – and from the traders view, find we are subject to about 40% WTO tariffs on exports – or the government asks for more time by delaying article 50 then maybe we can get back to trading again, even if for a limited time only!


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