Cereals Market Update September 30, 2013 12:00 am Old Crop Good grain analysts and market economists try to predict the changes in grain supply and demand before they happen (ourselves included). They might or might not be right, but when the Chinese wheat price reaches a 2-year high and high enough to potentially suck in imports from the US and Europe, people take note. China (the world’s largest wheat consumer) has been purchasing large quantities of wheat. The USDA expects nearly 10 million tonnes of wheat purchases by the People’s Republic; a volume not seen since 1995/96. The Chinese administration’s figure is not far below that. The world can supply this amount this year, but if this is to be a new trend, then the pressure on global grain markets will be felt for sure. This has rallied the marketplace in the latter stages of this month, although, there has been ample market supply locally. In particular, Ukraine has harvested a record grain crop with ample to supply those countries the UK normally sells to. Whilst the wheat crop is a healthy 22 million tonnes, it is Ukrainian maize production that is astounding. A recent swing to maize growing has increased its production from 7 million to 29 million in only 7 years, having only overtaken the wheat production in the last two seasons. This implies a substantial surplus for feed grains in particular this year. Unfortunately for the Ukrainians, heavy rain has hampered harvest and movement so barges are now lined up in the ports waiting to be filled. Bu it will come out eventually. We also note that the markets are a little jittery as the large US maize crop approaches harvest (only a few days away), and this is playing games with investors and speculators. Investment companies had been short selling (predicting further price falls) but, seeing the market rises, have recently been squaring their positions. UK Supply and Demand DEFRA has published its last supply and demand estimates for 2012/13 this month, although, as they are not satisfied with the reconciliation, they are ‘provisional final’ figures. Whilst wheat and barley are thought correct, the adjustment of other crops could impact on them too. The final closing wheat stock level has been increased by over a quarter of a million tonnes to almost 2.2 million tonnes; the highest wheat carry-over since 2008 and the third highest since 1990. This is amazing considering the small crop size, but demonstrates just how much has been withheld from the marketplace. This identifies a number of things: With the grain market having gradually slipped by £75 per tonne since Christmas, and with all the clear bearish signals available since then, this is a very unsettling observation that producers have decided to keep anything in store, let alone carry-over such a large surplus. Many farmers are presumably not so tightly strapped for cash as some have suggested (although others might be). Grain in store is a liquid asset and easily converted into cash. A large carry over means a large opening stock level and so will be bearish on the new crop prices too. It also demonstrates just how the consumer has options. Whilst grain processors would rather use domestic wheat, imported grain is only a telephone call away. It is no surprise that the final wheat import figure was almost 3 million tonnes, about double the previous highest import figure in the last 25 years and possibly the highest wheat import figure ever. New Crop With harvest now pretty much out of the way, drilling is making great progress. No floods, thank goodness. Indeed, nobody is complaining, but some parts are now actually rather dry! There is little to add except that in conditions like this, it is likely that a large area of winter crops will be planted. There is a notable rise in rotational and farm system considerations rather than simply the highest gross margins. For example, many farmers are planning a greater than usual spring crop area to accommodate black grass control, a possible rise in winter barley area is being planned to allow a greater harvesting window and others are considering replanting some of the crops they encountered last year when nothing else would grow. The rotation could become more varied in future. Also, we should be aware that a large drilled UK wheat crop could mean a high volume harvest next year, making the UK an exporting nation again. This is yet to be adjusted into the marketplace, so, as we have mentioned before, selling some new crop (2014) wheat might prove sensible in the long term.
