Clearly it was over done on the downside, but this rise of £20 since late September appears to be more than just a correction. So is the wheat market going to continue going North? That’s the big question for the UK.
Well, nothing much has changed on the supply side since harvest. No one seems to doubt the size of the UK crop at about 16 million tonnes. The exportable surplus is always subjective, but most agree it’s three to 3.5 million tonnes. Being optimistic one million tonnes could be shipped by January, but that still leaves a lot to be exported over five months.
I said last month that wheat could go higher, and it has – and yes it could go further still, but it takes a brave man not to sell some on the back of a £20 rise! Apart from the uncertainty of the southern hemisphere harvest to be completed, the biggest threat to UK wheat values remains maize, which can be imported from any number of countries – especially to the north eastern and Scottish deficit regions.
Barley is behaving exactly as I forecast six months ago. Between now and next harvest the world will have to work with the lowest stock to use ratio for 30 years. While barley may not calculate into many UK compound feed rations, it is irreplaceable in many part of the world, especially where camels are concerned.
In some places feed barley is only now £6 below feed wheat. Malting barley has now levelled off as domestic maltsters are well covered until new crop. But Openfield has a good export programme all the way through to July 2015. The European Union has a one million tonne malting barley surplus and some third country export sales have been made to South America. These are intended to come from Denmark or France, but could yet be sourced locally from Argentina which has just started its spring barley harvest – or even Russia that has a large barley surplus, made cheaper by a devalued rouble. Malting premiums are still good at £20 plus over feed for the new year but increasing feed barley values could narrow that gap yet.
Weaker sterling has helped all UK export sales recently; and while, as I said last month, I expect it to weaken further as we approach the election in May, the latest EU economic news is so poor, even from Germany, that I fear the euro will always be in front of sterling on the downhill slalom, making the pound artificially strong.
Just now we are in a good place on the south coast, where the big boats of wheat, panamax size and 50 to 60,000 metric tons (mt), can be shipped from Portbury or Southampton to a variety of countries around the Indian or Pacific oceans. But, we must recognise that we are a long way from those destinations, and sooner or later countries that are closer than the UK will sort out their logistics issues, and will undercut our price.
So we/you need to keep feeding the bull and keep selling wheat, while we have this third country opportunity. If the big boat trade suddenly dries up, the market would have to drop about £6 to be competitive for the small 3,000/5,000 mt coaster trade. Also, as we have seen in the last two years, when wheat suddenly becomes too expensive, cheap maize will be invited into the UK.
One of the ethanol plants is rumoured to be already using maize instead of wheat. But once it starts coming in, it is likely to put pressure on wheat prices. Spring malting barley is the stand out new crop sale at about £145 ex farm for the October/December position. Some growers reckon their production cost is only £110 per tonne. This is in contrast to wheat, where none of the forward prices seem to make a margin over production cost. Rather than take this drastic step of locking in a probable loss, farmers are passing that responsibility onto Openfield by committing a lot more wheat to its various new crop pools, trusting they will again beat the market.