Arable Update – Mar ’16

There has been more bullish news for combinable crops in the last month than all the other months post-harvest combined.

Firstly, crude oil has lifted back to above $40 per barrel (it had dropped to $26 at its lowest).  Crude oil prices are linked to soft (agricultural) commodities both through commodity-based funds but also the biofuels sector.  Whilst the cost of production of grains falls when oil is cheap, so do output prices.

The Pound and the Euro have both weakened in the last month; Sterling against the Euro and the Single Currency against the Dollar.  This make UK exports into the Eurozone more competitive, and also EU exports to the rest of the world.  Export sales of wheat from the UK have picked up strongly.  In January, official HMRC data shows that 310,000 tonnes were shipped – the highest monthly shipments for five years.  There is still a large job to do to clear stocks before harvest with over a million tonnes above last year’s closing stock level remaining.  Demand tends to slow into the spring and summer as new crop competition picks up from elsewhere. This is true for barley too.

Further afield, unseasonal cold weather has been experienced in the US Plains (especially Kansas where much of the winter wheat is grown).   At this time of year the young wheat crop is very vulnerable.  It does not mean any damage is done, but speculators and traders in Chicago also become twitchy at this point.  However, the European wheat crop is in good condition, and there is apparently a large area of wheat planted.  It also appears that in the Russian and Black Sea region wheat is growing in good condition.  We cannot assume the low prices are about to end.  And the UK still has substantial stocks to clear.

But new crop prices have been gradually picking up as a result of these factors.  The old crop-new crop price spread is now over £14 per tonne from May to November 2016.  Eight months ago it was negative!  Whilst this does not signify that the grain market has turned around, it is positive.  There could be some selling opportunities in coming days and weeks both for old crop long holders and also for marketing the new crop.

It has been cold in Scotland and preparation of land and planting of spring crops is behind normal.  However, our expectations of a higher spring barley area do seem to be happening across the UK.  This is slightly surprising with such a large quantity still on farm or in merchants’ stores, and prices teetering into two figures with very little malting premium available.

Increasingly dry conditions in Indonesia have encouraged higher oilseed prices globally, which has rubbed off onto UK oilseed rape. This, coupled with the bullish news of crude oil have helped oils to rally too.

Egyptian capital has dried up again this season causing delays for sales in the bean market.  Ramadan is a summer event this coming year as so preparation for this with imported beans should be happening imminently.  This is a problem is cash is not flowing.  A premium for beans over feed wheat is unlikely to develop if the worlds largest importer is not buying.