I recall from the film about Watergate the expression “follow the money”. This could be applied to the current situation over Brexit and UK exchange rates! I think the ‘Moneymen’ have a clearer view than us over Brexit! Judging by the way sterling has firmed, since August, when it had a euro exchange value of 92.5p – it has gradually increased to about 85.75p today (21 October). This suggests that either a deal or further extension is now on the cards for sure.
Meanwhile, while all this is going on, the UK has continued to churn out vast tonnages of export wheat and barley. Ok, the Brexit deadline has precipitated this but we have the quality. The fact that we are still just about the cheapest in the world has helped.
In any other situation, where sterling had appreciated by this amount over a short period, we would have lost that ‘export edge’ but not this time. This is borne out, by the fact that the ex farm price of wheat is still £4 higher, than it should be (allowing for firm sterling). Yes, because of a big wheat crop we had to go back to a low base price and farmers have supported this effort by selling more than just their extra surplus tonnage.
Export facilities and logistics have never seen so much pressure of throughput, as witnessed up to 31 October. Farmers and central stores have supported this export initiative magnificently, being prepared to dry and load big volumes of grain in a short time. They have had to be patient. Waiting for ground to dry out but the next two weeks look reasonably dry so farmers will disappear drilling anytime now, loading boats will not be their priority.
I don’t see cereal prices falling short term. We already have a healthy programme of forward export sales for wheat, feed and malting barley which extends beyond 31 October, and in some cases into the new year. The EU have already exported 50% more wheat than the same time last year – 7.5 million compared to five million. Ok, the UK is not as competitive on exports with the sterling/US Dollar at 1.30; as it was at 1,20. However, for the time being we remain cheaper than anyone else. This is partly because the prices in our traditional nemesis countries – Russia, Ukraine, Black Sea – keep slowly increasing. Kazakhstan is absent from this usual line up of wheat exporters, because of a poor crop. So for now buyers keep coming back to the EU and UK. There is rumoured to be a big international short of feed wheat into Asia. True or not that is supporting the bullish sentiment on export wheat.
Oilseed rape should be left alone for now. Firm sterling, and nothing else, has caused the market to fall £10/£12 per tonne. Whatever happens on currency, the basic S & D on oilseed rape still tells us there is not enough seed in the UK, without significant imports. So sit tight for now. You have been able to make sales at much better values than today’s price, and you will again. In some of our area the flea beetle damage is so great, that 50% to 100% of some crops have already been ripped up. We now have members considering carrying over this year’s crop, as they will have no new crop oilseed available.
So to summarise, despite Brexit, a record wheat crop, strong currency, I think the UK grain trade is in a good place!
Why? Well no one really believes the ministry wheat crop figures of 16.2 million tonnes. Maybe 15.5 million tonnes. Even with sterling appreciating 5% we are still only £1/£2 off the top of recent wheat futures, high points. By the way, our wheat futures are about £20 per tonne cheaper than the French MATIF futures, so they won’t be competing with us anytime soon, for exports.
In the bigger pictures, China keeps saying that it’s reached some accord with the USA, meaning they are buying commodities again from America. Yes that means both China and America will have to roll back some of the penalty tariffs they have been jointly imposing but Mr Trump seems more interested in ‘Duffing up’ Turkey and Iran just now. So normal trade may well resume with China. That would boost all commodities especially protein and oil. The USA maize crop is a ‘non story’ now but the first cuts of corn in the big producing state of Illinois are much poorer then normal: so watch that space. One thing for sure, at current UK wheat values no one is going to rush to undercut them with cheap imported maize! Another reason for me to be cheerful, my football team Leicester, and Wales both won this weekend. Wales reached the semi final of the world cup, beating France by one point – with France down to 14 men. Exactly a repeat of what happened to Wales in 2011. So justice is done at last.
When you read this, I predict Wales will have reached the world cup final and the UK will be enjoying more ‘extra time’ trading on with the EU, in another extension or a transition period.
