March Arable Update – Mar ’14

The markets are now mostly focussed on new crop grain, with only a small proportion of the old crop remaining.  Crop supply and demand fundamentals are having a greater impact on the new crop too with old crop tending to move in response to the price spread from new crop prices.

Arable prices have picked up over the last month on a series of bullish information.  Firstly the political unrest in Ukraine has unsettled the markets.  Ukraine has grown over the last decade to become one of the most important grain exporting nations; supplying net exports in an average year of 2.5 million tonnes of barley, 18mt maize, up to 10mt wheat and 2mt oilseed rape.  This is no mean feat as only a decade earlier net exports were averaging about a quarter of that level.  Inevitably, concern that the grains might not be able to reach the marketplace (ports), or the necessary (imported) inputs for the growing crops might be hampered caused a rally in prices, mostly seen over a single day in early March.

Also this month, some concerns about particularly dry growing conditions in Kansas (the number one wheat growing state in the US) have rallied markets globally.  Reports suggest is still not critical for the growing crop.  However, severity at this time of year can change rapidly.  Therefore, less-than-ideal weather conditions in these parts of the USA at this time of year tend to have a greater impact on the Chicago grain traders and therefore the global price, than the crop itself.

There is ultimately nothing more bullish than a low price, and the depressed prices that the world has had over the winter has encouraged a little more consumption of grains by feed manufacturers, biofuels outlets and the like.  This has had the effect of raising consumption.  Trade figures from both the US and EU have been buoyant and surpluses are looking to be lower than earlier estimates suggested.  This has had the effect of raising old and new crop prices slightly as we head towards the start of the Northern Hemisphere harvest in a few weeks’ time.

Barley prices remain depressed compared with their normal position to wheat in reflection of the ongoing surplus the UK has to export, and malting specification samples struggling to keep pace with feed wheat prices.  This is likely to remain so until the surplus of barley is removed from the UK, probably not much ahead of the harvest.  It is possible that a larger than usual carry over might remain in place for the 2014/15 marketing campaign.  Beans retain a high premium over wheat, and in many cases, spring beans currently offer a better gross margin to winter oilseed rape, at average yields and even feed price (non-human premium). It is possible we might see a slightly higher planted bean area this spring as a result.