Manufacturers have underestimated the increased demand

Writers Posted 24/05/21
Because manufacturers were caught with too much stock and finished product a year ago, they have now gone too far the other way.

Well we have now had our UK ‘weather market’ for the time being! In fact, aided and abetted by the bullish expectations of the May USDA reports, we enjoyed ‘Twin Peaks’ of price, in the last week of April and the first week of May. In the event the USDA report on 12 May was neutral at best and certainly bearish, if believed, to the 2021/22 season. But I expect you took my advice and sold some at the top of the market when you could?

However, we are still left with a residue of what seems to be pretty good prices for both new crop wheat and barley. With beneficial rain received everywhere in the UK and Northern and Western Europe, farmers are happier to make forward sales.

But, the old crop still remains tight on supply and as I have been saying for six months, this will now continue until we start our new crop harvest. The cold and dry weather in March and April has pushed the harvest further back; even in the middle of May very little winter barley has emerged into ear yet. There are serious questions about whether the UK actually has the 1.5 million tonnes of wheat in stock which is needed to keep the mills producing between the end of June and the first half of August. Some of that gap is usually filled by imported wheat, and as reported previously, French new crop cargoes have already been purchased for arrival during the second half of July. But, the French wheat is also later, so some of those French sellers are now trying to buy back the earlier boats sold, fearing that they won’t have the new crop wheat available for July shipment.

I think some manufacturers have underestimated the increased demand we are expecting to see post lockdown. Because they were caught with too much stock and finished product a year ago, they have now gone too far the other way and will have to chase the market for supplies in the next few months. My comment about oilseed rape trading being for “consenting adults only” is supported by old crop making £500 per tonne ex farm recently!

Returning to the new crop. As I said, the relatively high wheat and barley values left over from the weather market requires closer inspection. Take feed wheat for example. In mid-May it was still making £180 ex farm Nov/Dec. That is a price we only reached last November when it was accepted that the UK only had 9.5 million tonnes of wheat and large imports were necessary. The AHDB says that we should have about 14.5 million tonnes of wheat this time, so I wonder what the justification could possibly be for us to be at that same level of price now, four months before harvest with five million more tonnes expected. There is still the possibility that we may even have an exportable surplus ourselves. I ask you to draw your own conclusions.

Next, new crop feed barley. I traded some July/August feed barley at £155/£160 ex farm in mid-May. I cannot remember feed barley for harvest collection ever being worth that sort of money when selling forward at that time of year. Two things we know for sure. Firstly, when we get into the swing of harvesting barley the UK will not be short of barley in July or August. Secondly, we don’t know if at 14.4 million tonnes of wheat we will actually have any exportable surplus. But, in the case of barley we will have an exportable surplus for sure.

We have 13 months to go before we know how all this works out. A lot can change as we may have another ‘weather market’ yet, caused by late plantings of USA maize, or maybe a late summer drought in Russia. My personal view is that the old crop market for wheat will stay very firm until we see new crop, so that could be up to the first half of August. New crop French barley will be off by the end of June, so our old crop will stay firm until we start ours in July. Post-Mr Putin’s election, Russia may start dumping its wheat on the world market in September and October. By then we will know if we are going to be net importers or not. If we are, then coupled with the second ethanol plant coming on stream in the New Year, it maybe that February, March and April 2022 will be the best time to sell feed wheat. But don’t forget, I only get three out of five trading decisions right and if I was that clever at forecasting, I wouldn’t be doing this job!

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