February Arable Update

The announcement that the UK will be voting on whether to remain in the EU in June initially sent Sterling recoiling.  However, slightly later after the announcement, the Euro also shrank (against all global currencies, especially of course the Dollar) meaning the impact on the Pound/Euro relationship was not as great as with other currencies. The Dollar has gained from the event and so exportable goods from the EU to the rest of the world are more competitive, and those from the UK to the Eurozone are also better positioned.  Yet, as the global grain market is priced in Dollars, the global grain matrix sank $7/tonne! Overall, UK and EU prices continue to bounce along contract lows.

Wheat exports from the US are behind where they would normally be at this time of year.  EU wheat stocks are currently also high and the carryover is looking very heavy; USDA data suggests it could be 20 million tonnes carried into the 2016 campaign, compared with 13 million in 2015 and about 10 million in the previous 2 year-ends. The global and EU surpluses of grain stocks mean that the UK exports booked for March to June remain too thin to clear the surplus and it is looking increasingly likely that the 2016 harvest campaign is going to start with a price trough, rather than the 2015 one finish on a spike.

For the barley market the surplus, which is likely to be the highest the UK has experienced for 20 years, is also weighing heavy on the marketplace.  There is no surprise that the malting premium is small this year.  It arguably is surprising that the projected crop areas are indicating that spring barley area is set to increase once again, suggesting that UK farmers are considering their crop rotations as a priority over their grain marketing fundamentals.

Oilseed rape has not moved significantly since Christmas, hovering around the same levels.  An arguably positive sign though is the rise in crude oil (from its lows in mid-February of $26 per barrel) to about $32 now. The two markets are closely linked now thanks primarily to the biofuels market (and as a result the rest of the grain and oilseed matrix is also linked to oil price).

DEFRA updated its combinable crop supply and demand tables for the UK in February.  This covers wheat, barley, combinable maize, oats and other cereals.  The total availability for all of them has increased; some by considerable amounts.  Wheat supply, for example, has risen by 300,000 tonnes; a volume that is more than marginal when it comes to exportable volumes.  Total consumption is almost unchanged (a rise of 13,000 tonnes) and so the overall grain balance is increased by half a million tonnes.  The majority of this is borne by wheat.  This is not what the UK farmer will wish to hear at a time of surpluses and low prices.