November Arable Update

Little has been happening of note this month in terms of price movements on the UK grain market.  Any changes are being led more by the vagaries of exchange rates than the fundamentals of grain supply and demand.  Sterling has strengthened, but less due to the growth of the UK economy, and more from the weaknesses demonstrated by the economies in other parts of the world, particularly in the US and EU.  The stronger Pound led to a weakening of domestic prices meaning new export sales are probably off the agenda until UK prices fall or the exchange rate moves back again.  This is least helpful for barley because, with such a large crop this year, there is a large tonnage to export.

At this time of year, attention turns to the Southern Hemisphere wheat harvest.  It is only really Argentina and Australia, but they are both exporting countries which, when wheat supply is tight, become important.  Both appear to be struggling from lower than expected yields or unseasonal rainfall.  This has offered some mid-season market support.

The UK grain price held up surprisingly well at the start of this season in the light of a large global grain crop. This was mainly because the very large grain harvest in Ukraine had not started coming onto the international marketplace. The Ukrainians are now more organised with their export campaign and have realised just how large their maize crop is.  For their sake, they would do well to ship a significant proportion of it soon before the cold weather freezes the Black Sea ports as happens in many years.  It is not only the ports that have challenges presented by the winter in Ukraine.  Whilst the winter wheat crop was drilled in reasonable conditions, the winter conditions generally claim about 15% through winter kill but this can vary from 2% in 1990 to as much as 65% as was the case in 2003.  High drilled area does not necessarily mean a large harvest the following year, but all things being equal, it does increase the chance of a big crop.  The spring grains, maize and barley also account for a large proportion of the grain crop so their yields will clearly depend on weather in spring time.

Ukrainian old crop wheat is now competing with the UK feed wheat and barley crops and is depressing the marketplace.  However, the slow start from the Ukrainians gave the EU the opportunity to export grain and the tonnage achieved so far (10.6 million tonnes of wheat) is far in excess of predictions for this time of the year.  We can now expect this trade to slow.  Indeed only this month, Egypt, the World’s largest wheat importer purchased its most recent consignment from Russia, not the EU, where most had expected it to be sourced.  The barley market has slowed in a similar fashion to that of the wheat trade this month, the stronger Sterling has dampened much domestic buying interest as well as any trade interest and produced rising levels of competition for feed grade grain from foreign exporters.

Global oilseed demand continues to rise in a steady and seemingly unstoppable manner.  Of course it can be stopped; higher prices would choke-off the spiralling demand.  Also, the demand drivers could alter.  The huge recent change in this market has been the so-far unfettered drive of the middle classes in the emerging economies requiring meal to feed livestock for meat and oil in which to cook it.  This trend is not inevitable – if, for example, their transition to developed economies was to falter, then so would the rise in oilseed demand.  However, there is no evidence of this taking place in the short term.  Unfortunately for the producer and oilseed long-holder, this trend has not driven markets higher.  The world continues to meet the demands of the consumer by harvesting more and more oilseed.  Prices remain flat.