Grain Market Update – Jan 16

The domestic story is unchanged, just becoming clearer. The large 2014 wheat harvest left the second largest surplus in the grain barns at the end of its delivery period. So when the 2015 crop was cut, it was slightly smaller but still the fourth largest on record; the combined availability of grain in the UK added up to almost 20 million tonnes (accounting for the imports we always receive of hard wheat). For a country that requires about 15 million tonnes and carries over about 2, this means exports ofapproaching 3 million tonnes are required. Even with retaining stock levels at their 20- year high means exporting 2.3 million tonnes. This has been regularly achieved before (in 1996 4.6 million tonnes was exported). However, with sterling having been strong, this has not been easy so far this year. In the 5 months to December 2015, an average of 131,000 tonnes had been exported monthly. At this rate, the export target would be a million tonnes short.

In the same way, the barley carry-in to the 2015 campaign was the highest in 20 years, and the 2015 harvest was the highest since the late 1990’s. If the current campaign retains the highest carry-over stock in 20 years, it will still have the highest export target in that period of 1.9 million tonnes, equivalent to nearly 160,000 tonnes per month. Progress to December is 620,000 tonnes, equivalent to 124,000 tonnes per month.

Beans are now moving out of the country, after an Egyptian credit delay (Egypt buys almost all the UK bean exports). However the warm and relatively damp autumn has meant that some beans are losing quality and should be marketed swiftly to save any further damage.

We have in previous bulletins discussed the relationship between grain and crude oil and how there is a direct link; lower oil prices generally lead to lower grain prices. So it is not surprising when West Texas Intermediate (the bellwether for global oil price) falls to less than $30 a barrel, the grains and oilseeds ‘complex’ also slips. Others have identified a correlation between the slides in the stock markets, linked to the angst over the global economy and the agricultural commodities too. Yet, one silver lining as already mentioned in the general section among all this, and possibly partly related to the unsettling nature of the forthcoming referendum on the EU, is the weakening pound. This will inevitably make the UK goods better value for money elsewhere, and hopefully restore grain exports to a necessary level.

Oilseeds prices have slipped slightly in the start of 2016, but by considerably more in Europe, the UK farmer being partially protected by the weakening of sterling. Fundamentals are relatively spartan either bullish or bearish, so in an overall bearish market, prices has dipped down.