My desk mug has the motto keep calm and blame the euro. Very appropriate: certainly the damage done in the last week to the UK’s intra European Union export opportunities, by the weakening euro, has been considerable.
It dropped to its lowest sterling exchange level for years, at about 74.5 pence. The reason was that the markets had been expecting a quantitive easing (QE) cash injection of about 500 billion euro, but it turned out to be 1.1 trillion! This is getting into the realms of Monopoly money now. So the trade had already discounted the market, knowing some QE was coming, but by nowhere near enough, and markets fell again.
Keeping the blame culture going, this morning (26 January) we hear Greece has elected an anti austerity party and they have vowed to renegotiate all of Greece’s debt repayment – the worst case scenario being Greece could exit the eurozone all together. Now interestingly, today, the euro exchange is no worse (yet) and it maybe that the trade – anticipating this election result – had already factored it in; either that, or as Shakespeare said: “even a fool is right now and then by chance.”
Either way, if like me, you are trying to sell malting barley in euro’s, it’s very bad news, and has knocked several pounds off the UK value. So that’s the blame part; but what about the keep calm bit? How does that work? Ah, well, the weak euro may have ruined euro price exports. But it’s very good for UK dollar priced exports, as the euro is now at a nine year low against the United States dollar.
This makes EU wheat exports more competitive against US wheat; and those sales are going well, with licences already issued for more than half the 30 million tonnes third country wheat exports forecast.
Currency apart, the US wheat is more expensive than the EU, and apart from Denmark the UK is best placed to meet this feed wheat demand. I said last month that we are still getting enquires for the big Panamax boats of 50/60,000 metric tons for the Middle and Far East. Feeding the ever growing population around the Pacific and Indian oceans is creating inelastic demand for feed wheat.
OK, the UK is fortunate that cheap oil – and freight – means we can ship wheat all over the world just now; and the fact that Russia hasn’t wanted to compete lately is a big help, but it’s temporary.
Even though the wheat market has fallen £10 since the new year began, it’s still 20% above the low point of last September. The UK has only shipped about one third of its three million exportable surplus. Two million tonnes is a lot to execute logistically by the end of June/July, but you need to keep selling it, and so do we, to third countries – or someone else will take our place at the table.
Also, while US wheat is dear; it’s maize is very cheap and there is plenty of it hanging over all the world markets. Milling wheat is a totally different market to feed wheat; notwithstanding the fall in base feed wheat, milling premiums are still very good indeed, even for the low grade 11% protein; so you can ‘keep calm’ if you have milling wheat, but not feed.
Barley has gone very well to plan; ‘camel led’ demand has kept the big boats coming; meaning that feed barley remains close to the feed wheat price; and could trade above it again, before the season is out. Malting barley domestically has been more or less finished for some time. While Openfield has a good programme of malting exports planned though to July, its old business; with the weak euro, making new sales from now on, will be difficult. While there is lots of old crop low nitrogen malting left unsold, overall I don’t think there is much barley as such; so while malting premiums will narrow, or even disappear, feed barley demand should hold for a bit.
Oilseed rape continues to ‘defy the gravity’ of the weak euro! By rights it should have fallen more than it has, but why? Could it be that there never was as much oilseed as we thought in the first place? For some months merchants with supply agreements to crushers, have had problems finding physical seed when called to deliver; some farmers have played a good ‘game of poker’ releasing just enough to keep wheels turning. But, it could be that all the trade just bought MATIF futures, against their sales; and now have to pay big spot prices; or raid expensive stored seed; so that ‘hand to mouth’ trade will continue. Meantime Openfield has done everyone a big favour by making the first 25,000 oilseed rape boat sale to Turkey, that should keep the pressure on the buyers. This will be the largest vessel of UK rape seed to leave our shores; adding to the largest ever cargo of Quench malting barley; shipped in one bottom, by Openfield from Southampton in December.
In summary; depending upon what the new Greek government does; there may yet be a much greater adverse effect, upon the euro/sterling exchange rate; so unless you are sitting on good milling wheat; you may want to keep ‘drip feeding’ the market while it still wants what you have left unsold.