November Arable Update

It is worth our while reminding ourselves just why grain prices have fallen so far since the high points in 2013. The chart shows how global arable farming has managed to match production with the demand for grains around the world. Neither axis starts at zero so the chart demonstrates the change rather than the total amounts. It shows that in 2013 and the expectation for 2014 harvest is that production of all combinable grains (this includes wheat and all coarse grains), has exceeded the requirements from the consumer, thereby adding slightly to the global surplus. The stock change is small, but its impact is dramatic. It demonstrates how the marginal unit of production (slight surplus or slight shortage) is the one that dictates what the price is going to be.

Figure 1 ~ Global Grain Production and Consumption (Excluding Rice) and Stock Change

The pattern is the same for both wheat and coarse grains, with a small surplus for both grain types for two consecutive years. There have been no weather ‘events’ on a global scale to affect production. However, whilst drilling has been good in large proportions of the Northern Hemisphere (where the lion’s share of combinable grains are grown), notwithstanding the less than ideal conditions in Russia and Ukraine, nobody knows whether the conditions will remain positive through to next summer and whether the yields will turn out so high. For this reason, the forward market continues with a price rise (carry) into the 2015 crop. Indeed, the London wheat futures record November 2015 wheat, at nearly £13 per tonne higher than January sales and so about £15 per tonne above spot values. Bearing in mind the autumn drilling season has been good and at the moment, there is little to suggest a smaller harvest, maybe this early stage is a time to think about starting the 2015 marketing campaign.

The nearby barley market has been quieter recently, but picks up post-Christmas. It needs to in order to remove the chances of a surplus again this year following the large crop that was harvested. In 2014, much less spring barley was harvested (less than 4 million tonnes compared with over 5 million from the unusually high 2013 spring barley crop), but the overall barley level is similar. The oilseed rape market picked up largely on the weaker pound and global issues. The soybean harvest in the Mid-West is coming to an end, and whilst cold weather in North America has raised the meal requirements for livestock, the oilseed in store is not likely to allow a considerable price hike this season.

Many growers are concerned about a fall in pulse prices on the back of a large crop in the ground in the UK and presumably the EU to use these crops for Greening. Indeed, some falls are likely (and in the US pea and bean prices have been declining of late). But a larger marketplace should also provide new opportunities for pulses to be marketed, such as into animal feed mills where supply has been more of an issue than price in recent years.