Grain Prospects

Crops around the word, and especially near to home in Europe, are growing well and forecasters are projecting healthy yields again for this year. New crop wheat futures prices have remained almost unchanged from the start to the end of the month.  This should probably be seen as quite a good outcome for UK farmers, as sterling has gained 2% (bearish) and global forecasters are suggesting good forthcoming yields.  There is also a full carry from old crop to new and then also to 2017 harvest too, suggesting ‘the market’ considers the grain market may not be so awash with grain post-harvest. 

Indeed, as far as the UK is concerned, the supply and demand balance sheets are looking considerably healthier now than only two months ago, following a series of considerably good exporting months.  DEFRA is now projecting approaching 3 million tonnes of wheat exports in total, leaving about 2.5 million as carryover stocks.  This would be the highest wheat exports since 2008, and closing stocks at about the same the same level as then (being either the highest or second highest for at least 24 years).

For barley, the exports of the last couple of months have also been good. The UK is set to notch up the highest level of barley shipments for 20 years this year, leaving us, yes with a high carry over of over 1.5 million tonnes, but lower than was feared only a few months ago. This could still be a 20-year high, but similar to levels carried from the 2009 campaign to the 2010 harvest.

May is the month of the year when the United States Department of Agriculture (USDA) publishes its first forecast of global grain output for the next harvest.  This year, their figures predict wheat stocks will rise again, by 14 million tonnes, or, more meaningfully, from 34% of annual requirements to 36%.  Coarse Grains are neutral with both production and consumption rising, and stocks as a percentage of usage declining (less than 1% which is why it doesn’t even register in our table).  It is worth noting that these projections have changed substantially in the last couple of years as projections become estimates and estimates then become assessments.

The coarse grains are feed grains which include barley, oats and other feeds, but is overwhelmingly maize (78% of the total).  In other words, barley and oat prices are chiefly led by global maize prices.

The following two charts show the long-term stock to use rations for wheat and coarse grains (according to the USDA).  This demonstrates that wheat stocks are about as high as they have ever been in the last half a century, meaning ample wheat is available, and prices are likely to remain subdued.  The coarse grain chart is less straightforward as the major shift in (Chinese) policy is clearly visible where stocks had been rising fast then plummeted after the late 1980’s.  Taking that spike out, the market supply is about an average year. This suggests if anything, feed grains might be more likely to rise than milling specifications.

Oilseed rape prices have picked up about £7 over the month; partly on currency issues but also on a rise of crude oil.  (Note that crude oil has risen from its low of $26.21 to $50; nearly doubling since February.)  There is confusion and uncertainty over how much soybean the south American harvests will produce this year, although it is very early days yet.  However a little strengthening of Sterling at the second half of the month has also had an impact on domestic oilseed prices.   The pulse market remains in trouble, largely because Egypt, the main buyer on the global market continues to struggle with accessing sufficient finance.  Forward new crop sales are not happening yet.