Maize scare not quite over

As suggested in my June article, the late planting of the USA maize crop, did cause the global hedge funds – who were mega short of futures – to panic, and all “rushed for the exit” to buy back their maize futures; causing a temporary rise of £10 to £15 on wheat futures, including our own.

It took about a week for the trade to realise two things. Firstly, even an estimated loss of say 50 million tonnes of US maize is a drop in the big ocean of a world corn crop of 1.3 billion tonnes, especially with the South American prospects looking so good. Secondly, as the USDA report on 11 June confirmed, the world in 2019 is looking at a record wheat production of some 781 million tonnes with stock levels by June 2020 increasing to 294 million tonnes, so while the maize was an entertaining diversion, it had no physical bearing on the global wheat crop, which is set to restore the 30 million tonnes of production lost last year, mostly in Russia.

So, is the maize scare now over and done with? Well, not quite no. You see the amount drilled (or not drilled at all) after the ‘last optimum drilling date’ is huge. So with much of the maize growing period reduced by about one month, yields on this portion, are likely to be lower. It also means the less well established corn crop will be more vulnerable to extremes of weather in July and August. So either excess water or heat would cause another price rally.
Also worth noting is the same hedge funds who rushed to buy back their maize shorts, then reversed their positions and went long of Chicago futures instead! My guess is they are expecting further ‘flash problems’ to come from the late planted maize crop. If it happens, my advice is the same as last month.

If UK feed wheat goes back to £150 ex farm before Christmas, sell it! To support this our southern crops have just received the most beneficial rains – up to today’s date (14 June). We now need the sun to add quality to a potentially above average crop. More worrying though is the spectre of a ‘no deal crash out’ Brexit on 31 October!

You only have to look back at what happened between last Christmas, and the intended exit date of 29 March. Even though we had already traded, if not moved, 75% of the UK crop. It didn’t stop the price of cereals collapsing over three months, as end users stepped back, buying hand to mouth only, believing there would be no export outlet to compete with in April, May and June. OK, it didn’t help that certain companies imported a record 2.5 million tonnes of maize into the UK up to June, but just try and imagine what could happen in say September or October if no deal has been agreed for a formal exit and there is still a likelihood of a ‘crash out’ into WTO ‘tariff land’ on 1 November!

If the market can collapse in the January/March of a year – when we didn’t have a huge crop – with only 25% left unsold, guess what would happen if we still had 80% of the crop to sell and move after October? So with that in mind I repeat, £150 ex farm is a reasonable price to forward sell October/December wheat.

Spring barley, with recent rain, only needs to hurdle any wet harvest weather to produce a good crop. That can be sold at around £145 for harvest, £150 for later. With the main EU malting barley producers Denmark and France looking good, there should be a big potential malting surplus in the UK and Europe. So this is also a fair value, especially if you need to secure an export home by the end of October.

I don’t alter my view on oilseed rape. It’s too risky to sell forward unless prices improve by at least £10. It won’t be long before you know what new crop has yielded. There are plenty of empty merchants stores desperate to acquire harvest oilseed!

At the time of writing, the uncertainty over the next prime minster the pound is bound to weaken. That means we still have the pre-Brexit window of July to October to exploit for exports, so lets get on with it! Final thoughts, in four and out of the last five years we have seen a price spike during July. If we are to get another, my crystal ball says look towards Eastern Europe and the Volga region of Russia, its been hot and dry there lately. The US maize story still has some legs, so keep looking for one more spike but don’t forget to sell it this time.