January Arable Update

The grain market is in a lull, weighted down by a lack of supply and demand fundamentals and a series of technical issues.  One would not normally expect farmers, the ‘natural long holders’ to become bogged down with technicalities of the marketplace, having a farm to manage as well as grain to sell.  Consequently, some of the movements in the grain market might have appeared rather illogical in the last month or so.

However, chartists who follow global commodity prices will recognise that a key point of resistance on the Chicago wheat market was breached in the last week, turning a point of support into an upper limiting factor on global wheat prices.  To decide on whether to trade grain based on trend lines in charts to identify key points seems a little like mystical crystal ball gazing to many. Whatever your thoughts, one risk-reducing tool used in the large commodity trading houses is automatic sell and buy signals.  This is where the computer system overrides the trader to make a trade because of shifts in the marketplace, thus reducing exposures and minimising losses.  If enough systems operate in this way, then charting becomes a self-fulfilling phenomenon and everybody has to pay attention. We recognise that this might not be a long term market fundamental but can have substantial impacts on short term price movements in a similar way to how investment funds can move a market in the short term.

In the meantime, a series of snowfallshave arrived covering a number of areas of, until now exposed winter crops.  Dormant plants can cope with substantially colder weather conditions but, now they appear protected, their prospects are better for the spring, playing a bearish fundamental on the grain market.  Dry conditions in South America are causing concern for some, but this is not urgent yet and speculators have not made any changes to their very short positions.

Overall, the market slumped another £10 for most grains in January, with some farmers realising that their 2014 costs of production might not be met without the Single Payment at these prices (see also the Loam Farm article).