New spring barley malting varieties, don’t like spending much time in cold ground which affects their vigour. They like to go straight from the bag into the ground and up and away as quickly as possible, so some sun is needed now.
Although the grain market fell further during March with lots of futures contract low points reached on both sides of the Atlantic, it has begun to slowly recover. It’s not dramatic enough even to call it a “dead cat bounce” but it’s trying to go on up. As I trailed last month, the UK has continued to ship a lot of wheat. It may be up to two million tonnes will be shipped by the end of March.
That would put us in with a real chance of exporting our 2.5 million tonne surplus before harvest. Of course if we get close to that, the goal posts may move again and talk will shift to our so called “big carry out” surplus.
But this is more technical and less real than our exportable surplus. That is because it’s a very subjective figure. It used to be reckoned that you needed only 1.6 million tonnes of wheat to see you through from the end of June to the new crop in the middle of August, but that seems to have multiplied now to say 2.6 million.
But it’s a bit of a figure balancing exercise: e.g., if you said you carried it in last year, and it’s not been used, it must be there, right? Not necessarily: all over the world agencies are making prior year adjustments to maize and wheat stocks, sometimes going back two harvests! What we do know is when we have shipped more than 2.5 million surplus, if we keep going we will then be eating into whatever the carry out surplus is. UK wheat is cheap, freight is very cheap, and currency remains in our favour – and will continue to be so during the Brexit uncertainty.
Another good sign is UK feed wheat is now back trading at a premium to our futures, into the big boat ports. This confirms that merchants now need to buy real ex farm wheat to fill their short sales.
New crop wheat futures have now recovered about £5 from their last low. So the gap between old and new crop has widened again, restoring some hope for long holders who can now contemplate selling the new crop carry again. That said, the £14 differential between May and November futures does not provide much bad weather protection premium if anything goes wrong in the world. Where might that be? Well, I have just been to India in the main grain producing area of the Punjab. The El Niño affected monsoon meant a lot less rainfall: consequently rivers have dried up, and their crops were coming to harvest faster than normal in March.
So when I hear the Indian government talking about a 93 million tonne wheat crop, and the trade talking only 80 million, I know who I believe.
They are already importing wheat from Australia and will need maize as well. Certainly they will not be spoiling our markets by offering cheap wheat for sale this time around! We now about the drought problems reducing the maize crop by five million tonnes in South Africa. It now seems North Africa also suffered from El Niño as well.
In the United States great plains, dry weather has been exacerbated by late frosts causing concern with the hard red milling crop and conversely in the maize belt where it’s too wet to start planting. OK none of these little events are disasters yet. But it explains why the big hedge funds are now seeking to reduce their short position in the market.
Also the European Union just came within a whisker of placing an import tariff upon third country maize. That could happen anytime now as all cheap import quotas have been used up. If it does we will need to use a lot more wheat to bridge that stock feed gap between now and next October when new crop maize is available. By the way, that’s the same £10 per tonne the UK will have to pay should it go the BREXIT route upon grain exports to the EU. More of that in May when things should really start to hot up on that debate.
To finish, I commented last time about oil and gold having plunged, but also recovered, whereas grain had not. It could be that we will start to see that correction now after all oil is 35% up from its low point. I would settle for that on wheat.