2016 has been some year. Who would ever have thought that the UK would leave the European Union or that Donald Trump would be the next president of the United States. More amazing than that was my team Leicester city winning the premier league: all it needed was Ed Balls to have won Strictly to complete the unlikely set.

But our grain market has been equally bizarre. We had all become conditioned to several years of exponentially higher world grain yields with resulting flat line prices. Farmers have reduced costs to the bone and had budgeted for feed wheat at £105 for the 2016 harvest. Well Brexit has changed all of that for now.

Since then I have written many articles about not squandering the Brexit money. As our thoughts switch to the 2017 and 2018 harvests, it’s worth repeating some of it again. We have analysed the LIFFE wheat futures price and alongside the sterling/euro/US dollar, there can be no doubt that were it not for Brexit, UK wheat would have been trading at £105 ex farm since harvest.

So it’s important to recognise Brexit for the windfall in grain prices it has created for UK farmers. Outside of this UK trading bubble nothing much has changed. In important producing areas farmers are really only getting £105 for wheat. Even with France taking a massive one off hit on wheat and barley production last harvest, it’s hardly caused a ripple in EU supply terms.

Even with the UK only having a modest exportable wheat surplus of 1.7 million tonnes with maybe 900,000 million tonnes shipped by the end of December, this does not give the price protection it could. Why? Because you have Baltic countries such as Latvia and Lithuania supplying cheap wheat to both Ireland and Scotland, so the supply side of the supply and demand is now being topped up.

Next you have the Australian harvest. This looks to be breaking all records by producing 32 million tonnes of wheat. That’s a 25 million tonnes surplus. It’s so massive there are doubts that logistically it could actually all get shipped in one year and may be carried over to harvest 2017. These two examples prove the point that the UK trading bubble can be undermined and got around. If the UK produces a normal three million wheat surplus next year and we return to having to compete at export rather import price parity, then look out.

Over the past few months I have expressed my views about currency and unfortunately much of what I presaged is happening. We have now lost about 50% of the benefit we enjoyed when sterling moved from 77p pre Brexit to more than 90p and it’s now 84p. If there is any likelihood of right wing governments being elected in France or Germany in 2017, the euro will be under more pressure. This will artificially inflate sterling, and further reduce our export competitiveness.

My view remains that we will have a long drawn out parachute assisted soft Brexit landing. I think it will take much longer to exit than two years and certainly a lot longer than that to negotiate new trade agreements with EU.
A line from the Eagles song “Hotel California” springs to mind: “you can check out, but you can never leave.” If you have been following my advice for the last six months, I am confident in wishing you a prosperous 2017 and 2018. Keep trading!