Since my last article we have had near perfect growing weather; plenty of rain interspersed with sunshine and temperatures in the low to mid-twenties. Crops in the south and west look as good as they ever could at this time of year. New crop wheat futures have now traded about £20 off the top reached in April.
So, while the UK is ok there remains a few weather issues in the rest of the world, which may yet impact on our prices in a positive way. The last USDA report is forecasting a third consecutive year of record world wheat and maize production. In particular, they are predicting huge increases in stocks year on year from the end of June 2021 to the end of June 2022, so definitely ‘jam tomorrow’. But for this year they still need the world maize crop to produce a ‘normal’ crop. Narrowing that down, it means they cannot afford any issues with the North American maize crop. More importantly they are already acknowledging problems with the Safrinha maize crop in Brazil. It began at 109 million tonnes, but most believe it has lost ten million tonnes already. Since the May report, it’s thought to have lost another five to ten million tonnes. The USDA is due to pronounce on 10 June. Do I think they will reduce the Brazil maize crop by another 10 million tonnes? No, I don’t. They will “kick the can down the road” until next month as they don’t want to spoil the illusion of there being record crops and plenty of surplus to keep prices in check.
Maize apart, there are concerns about spring wheat planted in the USA and other countries, too. So these are tangible weather issues just now which have likely caused irreparable damage to crops. But if you were looking for more bullish factors, Turkey, Iran, Pakistan and Algeria have all ‘suffered’ crop damage, making them bigger importers of wheat. By the way, you can usually tell when the ‘bullish’ stories are running out of steam as they start talking about plagues of locusts. Well, I have something better than that; a real plague of mice in Australia eating everything. Better yet a mysterious dry, high temperature wind generated in Russia (called the ‘Sukhovey’) which has been conjured up to maybe affect their crops.
I think there is too much emphasis put on seeking out issues with crop sizes because we should really be looking at demand instead. China, probably forever, has changed the dynamic of world demand. Just think about the fact it was importing and using two million tonnes of soya per week during a lot of last winter. Its maize purchases were probably tenfold above normal. It switched its barley-buying programme from Australia to France, creating a huge deep water Panamax boat trade in our back yard at Rouen.
It has already bought five million tonnes of new crop barley from France, Canada and Argentina. I cannot see it will stop being the ‘big open mouth’ of the world anytime soon. So if you add extra demand from these other Eastern and African countries that have to import anyway to the rebound for food and drink as lockdowns lift around the world, increased demand will be a bigger factor than supply or crop size.
We will see this in the UK. Even with a more normal wheat harvest of, say, 14.5 million tonnes, and even though the new ethanol inclusion rate does not start until September, already one of the production plants has switched from maize to wheat starting in July. Maize is just too expensive compared to wheat. If it carries on with that and, as planned, the other starts production in January, potentially they could repeat what happened in 2017 and use 1.4 million tonnes. In addition to our normal wheat surplus disappearing almost by osmosis we could be balanced at best, or in deficit without imports, in the New Year.
Barley is very interesting; because of the high price of maize it has more price protection than 12 months ago, hence the £150 and above new crop values. That said, we are likely to have a surplus of 1.5 million tonnes, so it will need to be exported both as feed and malting as the high cost of haulage from the south makes it uneconomic to sell malting barley to domestic maltings. Just now our new crop wheat is not priced to be competitive for export because it does not need to be, for the many reasons stated, but barley will have to be. So timing is very important for barley. Any barley needing harvest movement should be wrapped up now at these good values. Likewise pre-Christmas, but if you miss that then wait until post-Christmas when wheat will be firm again.