Well, no one can accuse the US Department of Agriculture of being conservative or ever understating crop estimates.
Their first world crop estimate for maize from the 2016 harvest is one billion tonnes. Add that to their world wheat figure of 727 million tonnes and you have a record starting figure for both crops. It does not mean that’s what we will get.
They seem to have overlooked the fact that wheat plantings are down throughout the world with about three million acres of wheat land not planted in the US because growers cannot make a margin. But in four out of the past five years it has trended higher from the starting point – the exception being the Black Sea drought affected crop of 2012. That combined with a generally good looking northern hemisphere has frightened the remaining bulls away from the market. As I reported last month, the only known area of concern remains with the South American soya crop. They have lost tonnage and quality and this has given support to the oilseed rape market. But it’s too far away, and too soon to be sure of what the damage has been. The UK old crop market has been ticking over since the last brief spike on the 21 April. We are getting through our old crop wheat and barley surpluses and as I have repeated many times in recent months, we should export our nominal wheat and barley surplus before harvest. That of course leaves the carry out stocks and these are highly debateable. Usually it’s whatever figure was carried in at the start of the crop season which gets shunted to the end.
We have to be uncomfortable about the large suggested carry in figure of 2.4 million tonnes of wheat. You have to wonder where that could have physically been stored? Also with wheat supply now being very tight on farm, who would really bother to carry it over to new crop when the new crop premium is the lowest its been for some time? Of course if this carry in/out stock is not there with 250,000 metric tonnes of wheat needed each week by UK end users, a delayed harvest would soon start to eat into the carry out stock.
As the stay in campaign has gathered momentum, sterling has strengthened being as low as 76.50p exchange rate to the euro. It has not been able to regain the heights of 80p plus as in April. In and out of these currency fluctuations, it has been possible to make good sales of new crop and old crop oilseed rape.
I have been advocating taking this opportunity for the last two months, so I hope you have. I think you should keep selling, if you have it. The elephant in the room is Brexit. The way the well worn script – of everyone forecasting big crops, and stocks – is going, we as traders should be grateful for the referendum.
To reiterate: whatever the outcome of Brexit, currency and therefore the market will move around quite a bit just before and after 23 June. I suggest any resulting price increase will be worth selling into. Whatever happens to exchange rates, grain will resume its price level based on supply and demand, not currency. Without obvious problems it may be the last chance for sometime.
As a grain trader I often have to assess risk reward scenarios. The greater the potential reward the more risk you are able to justify. In the Brexit debate I can see no business case for leaving. But irrespective of what I think, there are some very eminent organisations, such as the Bank of England, the Treasury, and the International Monetary Fund all warning about currency and house price devaluations and recession returning if we decide to leave. That makes leaving the EU very risky with no one able to identify any reward whatsoever at this stage. Again personally, I don’t think that we, the electorate, should have been asked to make this decision at all. That in itself is a huge risk.
Openfield has been more than doing its bit to export UK surpluses; with the largest ever wheat vessel of 64,000 metric tonnes having just sailed from Portbury to America. Also in May it has shipped the largest cargo of malting barley ever, containing three separate brewing varieties, to a northern European maltster.
China has been spreading rumours that it intends to use up its stocks and reduce its imports. Its total of barley, sorghum and dried distillers grains imported in 2015/16 was 21 million tonnes. They are talking of reducing that to only seven million tonnes! Further they want to reduce growing subsidies to their own farmers; bringing the internal grain price down at the same time; and keep feeding the growing population. Well good luck with all that. That’s about as likely as my team Leicester City winning the premier league title!
