The UK market is still badly hung over with the fall out from last month’s euro crisis and with the pound reaching new highs against the euro, (73.25p) last seen in 2007. A month on, and we still don’t know if Greece are staying or going. Its stand off with the European Union has been described as “an eagle flying towards an aircraft jet engine.” If they collide, both parties are going to get hurt, so it’s best if they pull out before collision.
I think the Greeks have realised that in or out of the euro their problems will be the same, so they may as well stay in: but while they make their mind up, the euro stays weak. Since the £10 drop in feed wheat in the last week of January, the market has been pretty much unchanged at about £122.50 for May futures.
The strong pound is preventing any new intra EU business. Third country exports from the EU are still healthy with Brussels issuing export licences for 900 kilo metric tons of wheat and 376 kmt of barley recently.
There is still a good demand for big boats of feed barley to Saudi Arabia, Iran and North Africa. This is being shipped from Germany and the Baltic, with Openfield shipping 60,000 metric tons from Portbury. Really the problem with feed barley is whether there would be enough left to risk selling another 60 kmt when the next one has gone.
With feed wheat where it is, feed barley would have to drop in price to fit into a domestic compound ration; so it’s probably better to take advantage of the big boats while they are still coming. There is no liquidity in any market and execution is just as bad. The industry is waiting for countless vessels to come in and lift feed grains and malting barley. Unfortunately most of the January/Febuary/March boats will now arrive in March, just when everyone is drilling spring barley. So next month is going to be frenetic, with huge tonnages needed to be moved over a short period, to all the southern ports.
In Hampshire and Wiltshire almost no spring barley has been planted yet. Apart from the wet conditions, the soil temperature has been too cold. But it’s early days yet and with the modern drilling equipment most of it could be planted in a week, when the weather improves.
I do not agree with estimates that UK spring barley plantings will be increased by nine per cent. Apart from a bit extra due to the three crop rule, I cannot see where it will come from. Even in France – where because of mild weather they have already planted 35% – they will only be about three per cent up.
Wheat stocks seem to be weighing heavy on the UK market just now. DEFRA helped by cutting 400,000 mt from the carry in figure last harvest from the 2013 crop. Without the UK exports to the EU and with lack of new demand from the compounders, we are relying totally upon the big boats still coming from the Pacific and far Eastern markets.
New crop markets have drifted down on the back of nothing much really except for carry out stocks from this year. Everyone seems preoccupied with world stocks rather than the planted crop. Russia is still the big unknown; assuming it wishes to start exporting again next year, some recent pictures of its wheat crop emerging from winter snow are not good.
We know they planted it in some of the worst conditions for 20 years last autumn. So failure to establish or winter kill may be a big factor yet. In the United States we know that because of the same rock bottom prices that we had in the UK last October, the American farmers are reducing wheat and maize plantings by 10%.
Now the United States Department of Agriculture are saying that there will be less soya planted next season as well. So what are US farmers going to plant exactly? The UK is locked into a situation whereby all forward prices for harvest 2015 are below the cost of production. That is no encouragement to start selling now, if you have not made any sales yet.
As a matter of interest, since it came on the board the November 2015 Liffe futures market has already traded in a range from £165 to £120.50, £44.50 from top to bottom – and we still have eight months to go. That tells us two things at least: first, there have already been some good opportunities to price fix some of your 2015 harvest wheat; and secondly, volatility has not gone away very far.
Without the two record world crops in 2013/14, the increased demand for wheat and maize could not have been met without dipping into strategic stocks.
Some will argue that a chunk of that demand was for biofuel and if oil stays cheap, the demand for biofuel will recede. But will it? With mandatory inclusions of biofuel in petrol and diesel in the USA and the EU and with motoring cheaper, I would suggest that cars will be used more – meaning greater inclusion of biofuel from maize and wheat.