September Arable Update

The grain market is heavy and bearish.  All eyes are on the considerable maize harvest that, very early results (the first 3%) suggest, is going to produce a cracking yield.  The fall in prices since this time last year was predictable following a large global harvest in 2014 and indeed has been discussed in this Bulletin on numerous.  The International Grains Council (IGC) is expecting the global 2014 harvest to result in the following;

• Wheat: 717 million tonnes; 8 million tonnes more than forecast demand
• Maize: 974 million tonnes; 15 million tonnes more than forecast demand
• Soybeans: 310 million tonnes, 10 million tonnes more than forecast demand

These are the three key crops that determine the global price matrix; maize and soybeans because they are dominant in their sectors, the wheat because it is specific for particular markets and is so important to UK agriculture.  All three crops are therefore forecast to have a rise in stock levels this year, and the consumers are happily postponing their purchases, taking cover for shorter periods in the knowledge they can cover their requirements at short notice.

However, this does mean that if the consumer is buying at a slower rate than they are currently consuming grain, then their own stock level (actual or forward cover) will be in decline, which can only continue for a limited period.  Also, on the back of the bear market, it is understood that commodity speculators are overall at an exceedingly short level.  Again, this can only be time-limited and at some point these market players, whilst they can roll their shorts forward, will eventually buy back into the marketplace.

In Europe, the maize harvest is also considerable, and the price has fallen.  Indeed France has been busy exporting maize, a useful outflow of feed-grain for the rest of the EU, as we will still remain a net importer of maize.  The UK wheat crop is not of the highest quality which means the feed pile is high.  This is in itself bearish, as demonstrated by the feed wheat and barley price parity this season (barley usually trades at about an 8% discount to wheat).  However, crop which actually does meet the milling specifications is earning greater premiums. The UK has been increasingly focussing on feed-yield rather than milling-quality, and those with samples that meet the grade are earning as much as £40 per tonne premium.

The soybean crop, as already mentioned, is going to be large (we know that, despite it not yet being harvested).  We also recognise these forecasts include an assessment for the Southern hemisphere, which is more important for soybean than it is cereals. This crop has barely even been drilled yet.  Whist this harvest is far away and could yet be wrong, the smart farmer is not likely to hold off so long before selling oilseed rape just in case this forecast is wrong.

Beans are also of a lower overall quality than last year, with bruchid beetle causing some problems. This has led to the prices falling and the premium for human consumption springs opening up again to about £35 per tonne since harvest.