As usual grain markets wait for no one. Brazil is seizing the opportunity to sell a lot of maize to China. Russia has about one third of the world’s supply of wheat and is literally dumping it on any country which will trade with it. Ukraine is trying to do the same, but with the added complication of having to avoid sea mines and missiles. Meanwhile its near Balkan and European neighbours are not willing to make the same mistake as last year by allowing the free movement of Ukrainian grain across their borders.
Some recent wheat sales, probably based on fictitious Russian floor prices, seem to be well below replacement costs. I would have thought the usual distressed Black Sea prices were low enough, without making short sales at these levels as well.
Elsewhere, Australian wheat crop estimates continue to fall as the weather complex El Niño builds in the Southern Hemisphere, yet Argentina is hoping to offset some of the Australian shortfall. We will have to wait and see. In the UK, wheat harvest estimates continue to be revised downwards as the true extent of the poor harvest weather is realised, especially in the later-combined areas.
A lot of wheat had to be cut at 20% moisture, with low bushel weights and sprouting taking their toll. When the wheat is finally dry, in many areas it will be well below last year’s yield. Winter feed barley fared better and, in many cases, has outyielded wheat. Some believe the total crop will be under 14 million tonnes. If so, our exportable surplus becomes very manageable.
The UK is facing fierce competition from Denmark and Germany into its traditional export homes of Ireland and Spain. Many Northern UK countries have an unexpected surplus of feed wheat because of the failure of their milling wheat crops, so our feed wheat exports are not competitive currently. That said, if our ethanol production continues as it has started, that could lead to a wheat consumption of between 1.4 and 1.8 million tonnes, which would remove much of our surplus. The rally of crude oil prices should help this.
That may mean that, like a few years ago, we end up with a two-tier market where all the feed wheat north of Birmingham is required for ethanol and in the south it has to go to feed compounders or for export. Internationally, consumers lack cover after November and in the UK they need to cover all of January to June. This is why there is a more than usually high carry per tonne from now until then.
Feed barley looks cheap everywhere. Australia, having made up with China, has sold them one million tonnes for shipment up to December. China still wants more, but Australia doesn’t have the export capacity until the New Year, so France has resumed some export sales to China over the next few months. It looks like Russia, Ukraine and Australia have all the barley stocks, whereas North America and Europe don’t. We have the lowest world production and stocks of barley for 10 years!
So, I think our barley will have its day eventually. It is strange that Spain, after its disastrous growing season, is not taking the volumes of feed and malting barley that it was importing from us last year; so far, anyway.
UK malting barley prices have eased during the past month. Partly this is due to our maltsters coming to terms with the available quality and realising it’s commercially usable. Scotland has had a worse time of it, with distillers having to accept higher nitrogen than usual and high levels of skinned grain. The background is lower beer and spirit sales. A higher carry in of malt and malting barley also meant some maltsters had cover up to October.
The malting premiums are still historically very high. This is frightening maltsters, who think they should be lower, so if you have the quality there is nothing wrong with cashing it in, especially if you need to sell before Christmas. My view, however, is that it’s probable that if you add up the export sales already made and the supply agreements to be priced with continental maltsters, the UK may have already committed its malting barley export surplus up to June 2024.
I am absolutely certain, because of the lower crops in Scandinavia, France, UK and Germany, unlike this year there will be no carry out of malting barley in Europe from the 2023 to the 2024 crop. And that applies to milling wheat as well.
Lastly, some of the malting barley stored is already borderline on germination, with pre-germination, fusarium and split grain, so it will struggle to retain its germination. You know how to look after it, but inevitably more malting barley will be lost through the winter, so further reducing our surplus.