Well, it’s 18 May and the sun is shining: if you forget that the spring malting barley crop is a month late, it doesn’t look too bad! Bearing in mind the delayed spraying and fertilising the winter crops don’t look too bad either, but it’s all very fragile and average looking.
It also means that none of the crops can allow for anything much to go wrong with the remainder of the growing season or indeed the harvest. Well we know life is not like that.
Sometimes I think I should take up fortune telling. In April I forecast there would be a spike in wheat price: we have just had it in the first half of May. UK wheat futures for November 2018 exceeded the last big hike we saw back in July 2017. It was caused by the usual suspects: dry weather in southern Russia and Ukraine; and dry weather in the United States wheat plains (while the crop tour was taking place) with much the same in Australia. Rain has brought some relief but it’s reminded everyone about just how vulnerable we all are.
Take Russia for example: sure it’s really led the way on world wheat exports jumping to number one spot with about 20% – beating the European Union, US, Canada (it only grows 10% of the world’s wheat). But, that’s because it produced a truly amazing 85 million tonnes of wheat: that’s 25 million tonnes up from its more normal 60 million in 2015/16.
The current drought there could knock it back to those levels. You have to wonder what would happen to world wheat prices if Russia was not there to take every cheap world wheat tender when it comes up. Apart from Victoria and Tasmania everywhere else in Australia is also very dry, as is Canada. The United States Department of Agriculture has reduced its world wheat stock by about four million tonnes at the end of June 2018. But it’s still a hefty 264 million tonnes. But take China out of the equation (and let’s face facts they wouldn’t let the West have any if we needed it) and world stocks are only 125 million tonnes.
I think finally, some of the big end users have woken up to the fact that there really isn’t a lot of free market wheat and barley left about and there won’t be before the next EU harvest. Because of lower domestic yields and stocks, some were going to have to stretch this year’s crop to last for 13 months. I think some consumers will struggle to cover June, July and August with old crop supplies without resorting to dear imports.
Flour millers seem to have been sleep walking into a situation where all wheat supplies have been diminishing. And yet no attempt has been made to pay a decent premium that would have prevented milling wheat being sold as high priced feed. I think they may have to wake up to the fact that during the last six weeks of the wheats’ growing season, farmers must decide whether to continue growing their crops of Skyfall or Crusoe as high yielding feed wheat or add the costly foliar application that will secure the protein required for milling. With a forward price of about £140 as feed, there is no contest. Unless millers start forking out a £20 premium, farmers will not bother to spend the extra money on the crops.
Maltsters are almost as bad: malting barley has a very small premium over feed barley whether old or new crop. The 2017 harvest quality was poor. But with the delayed spring plantings meaning at best a later crop – if not one with quality issues – I cannot understand why they are not hoovering up whatever malting barley is left and paying a proper premium for it. Twelve months ago the malting crop in the UK and EU had a better potential than the current one has, and we all saw what could happen to that.
New crop malting premiums are not enough to justify flat selling. Perhaps the maltster thinks that there will be a huge crop of barley and prices will fall, But we already know that the world will consume more barley than it can produce next year, and stocks will be further depleted. Remember the barley demand for feed is inelastic – the camels must be fed!
So as usual at this time of year there is not much trade going on, but a lot of talk about the weather. The base feed values for wheat and barley are good and should make a better margin than has been possible for a few years: just don’t forget to sell some.