Grain Market Update

The International Grains Council updated its 2014/15 grain harvest forecast last week.  It has been gradually edging up its figures since the first forecasts were published in May last year.  In fact since then, their wheat production figure has risen by 20 million tonnes and coarse grains by 30 million.  Lower prices as a result of higher production increased usage which have also been increased by a more modest 10 and 15 million tonnes respectively.  This still leaves a greater stock level than initially expected which, with an adjustment to last year’s figures too, results in higher stocks than first calculated by 35 million tonnes of all combinable cereals.  This figure out of a total of 2 billion tonnes of global crop seems rather small (1.75% in fact), but we must continually remind ourselves that the price of any commodity is set by the relationship between supply and demand, not by any individual in the marketplace.

The world population keeps rising and calorie consumption per capita goes up each year.  Thus record crops should be normal, not headlines.  Yet the last two cropping years have been without hitch (on a global scale) and the world has ample grains; enough not to be concerned by the political shenanigans in Russia (not that they have much surplus left).  In the short term, there is little bullish news.  The collapse of the crude oil price has led biofuel firms to mothball their plants both in the EU and USA, leading to stockpiling of feed grains and oilseeds.  The large domestic crops of wheat and barley are not being exported sufficiently fast, which means, either a considerable carry over will be held back into the 2015 harvest, or prices have some way yet to fall to entice Spanish and other foreign processors to increase their UK purchases.

Indeed, after two years of net imports, the export market needs to be re-developed.  Contacts have been lost, contracts gone to France or Germany and other exporters.  Whilst the EU looks to be on track to shift its grain surplus by harvest, this is not likely to be the case in the UK.  A large carry-over could mean a considerable logistical problem when it comes to storing the new crop at harvest time, possibly causing distressed selling and a grain price dip at harvest.

We have commented on the unusual relationship of break crops in the last few months. This continues.  Currently feed beans have a £100 per tonne premium over feed wheat; possibly an all-time high, although with bean prices not properly recorded, nobody really knows.  Furthermore, the human consumption premium pushes good quality bean samples up by another £35 per tonne, making them worth more than oilseed rape (before oil bonuses).  Again, this has rarely been seen in recent years. There are some lessons here:

• When you see a very high price, it is often an indicator of a change to come.  Look at the milk market. This time last year, a litre was worth 35p, now it is worth 23p to some producers.  Pulses at this margin must be a selling opportunity.
• Pulses are a ‘thin’ market.  In other words, if there is a buyer, or beans to sell, the price might rise, but if there is not, then beans might not be sellable at all.  When stocks fall to the point the merchant trade cannot guarantee to fill a vessel the trades will stop, leaving any remaining beans as feed value at best, unsellable until harvest at worst.
• The UK had a good quality harvest in 2014 so has won the majority of trade to Egypt and the Middle East, this might not be the case in 2015. The human consumption bean premium is based on quality as much as quantity.
• Crude oil price has impacted the oilseed market along with a general oversupply of all oils.  We don’t know how long this will last. We should prepare our oilseed marketing on the basis that $50 per barrel is the new economics, but it might be a steep trough.
  

The crude oil market affects the entire global economy, and agriculture is affected as much as any other sector.  On the surface, it is an opportunity to purchase cheap fuel for vehicles, but it is evident that the market is having an impact on the value of outputs too.

The International Grains Council updated its 2014/15 grain harvest forecast last week. It has been gradually edging up its figures since the first forecasts were published in May last year. In fact since then, their wheat production figure has risen by 20 million tonnes and coarse grains by 30 million. Lower prices as a result of higher production increased usage which have also been increased by a more modest 10 and 15 million tonnes respectively. This still leaves a greater stock level than initially expected which, with an adjustment to last year’s figures too, leave a higher crop stock level than first calculated by 35 million tonnes of all combinable cereals. This figure out of a total of 2 billion tonnes of global crop seems rather small (1.75% in fact), but we must continually remind ourselves that the price of any commodity is set by the relationship between supply and demand, not by any individual in the