Arable Outlook- March

Exports have slowed, the Pound has strengthened, and the likely surplus at the end of the grain marketing season is bearing down on new crop prices.  This is not great news for long holders of old crop and probably not for anybody likely to need to sell at, or very close to, harvest either.  With a relatively large crop likely to be harvested, both in the UK and elsewhere, there is a possibility that harvest prices will reflect the large volume available for sale.  Market prices within the UK start to vary more at this time of year, simply as regions of surplus and shortage emerge. The difference between say Yorkshire and the Oxfordshire region is currently as much as £7 per tonne of feed wheat for example.

Commodity focussed investment funds have apparently been holding a short position in recent weeks.  This will have been keeping priceslower than they otherwise would be.  However, this is not necessarily such a bad thing for those with grain yet to sell (old or new crop) because the sentiment in these financial trading houses can change very rapidly from bear to bull.  It is almost as quick to buy a thousand tonnes out of a slightly short position as it is a hundred thousand tonnes out of a very short position. It is changes in market sentiment in these places that has caused the largest shifts in markets in the past and it could happen again.  Whilst this kind of speculator activity does not redefine the underlying market sentiment, it certainly adds considerable volatility in the prices.

This time of year makes grain traders around the world (of physical and futures grain contracts) very jumpy. Weather forecasts do not affect crop conditions at all but they do affect prices.  Weather conditions have a smaller impact on crop growth in the UK than most other grain growing parts of the world; other regions being primarily continental and therefore having more extremes in climate.  Furthermore, as the world has not had a weather event in a major grain producing region for two seasons, several are now ‘on the lookout’ for the next one to come and ‘beat the market’.  This could add unpredictable fluctuations and added volatility in the marketplace.  Our grain price reflects that.  Statistically, we must be due one somewhere in the world sometime soon.

Early forecasts for harvest 2015 by the International Grains Council published this month of the global supply of grains (wheat and coarse (feed) grains) is for a decline in both groups with an overall fall of 63 million tonnes from 2 billion to 1,937 million tonnes.  This is a 10 million tonne fall of wheat with the rest coarse grains, most of which is maize.  Consumption is forecast to fall as well, but by less, leaving an overall decline in stocks; always good for the seller (farmers).  It is early days yet, but this is a positive sign of possible price recovery in the new crop campaign.

New crop bean prices have come down a long way from the premium over feed wheat they have commanded over the last two seasons.  Not only is the market seeing a large bean crop in the UK, but other countries in Europe will have noticed the high prices available and the benefits given to legumes by the Greening regulations.  Also, globally, the production of pulses is on the increase.  Canada for example, the world’s largest pea producer (by a large margin) is intending to increase production by a significant proportion over the coming year. This will inevitably be bearish on the protein market.  Note also that the fall of maize will lead to a rise in soybean which is actually more protein than it is meal.  After all it is also a legume.