Grain trade: a review of the year

Emma Croft, 'Farm Ttrader, Anderson Grain Marketing Ltd
Emma Croft, 'Farm Ttrader, Anderson Grain Marketing Ltd

As grain traders across the UK wearily returned to their desks on 2 January at the start of this year, the value of feed wheat for delivery in November 2015 was £140/T.

By the end of the month, maize harvesting was well under way in Brazil, a large exportable wheat surplus was entering the market place from Australia and yields throughout the Southern Hemisphere were certainly surpassing initial expectations. As a result, the value of feed wheat for delivery in November 2015 had fallen to £125/T by the end of March, a decline of £15/T in just over eight weeks.

A late spring came and went, while Northern Hemisphere crop uncertainties, Black Sea political tension and changes to China’s import requirements all added short term volatility to the market.

On July 1, a new trading season commenced and for many Northern Hemisphere areas, grain harvesting was now well under way.

However, it is important to recognise at this stage that prior to any new season stock being accounted for, an estimated 212m tonnes worth of unallocated wheat globally was to be carried over into the current trading season.

This is more than 45m tonnes higher than the five year average; an amount which would take the UK alone around four years to produce.

News of plentiful harvests throughout the Black Sea, across Central Europe and key growing areas in the US arrived thick and fast and UK wheat values, as evident in the attached (above right) began to plummet.

The graph is the value of London wheat for delivery in November 2015; it begins on 2 January 2015 and ends at the end of November. The UK harvest period takes place within the highlighted red box.

Closer to home, I think it would be fair to say that this year’s Yorkshire grain harvest was perhaps an initially difficult but ultimately successful couple of months.

Huge volumes of wet grain were moved off the farm as quickly as logistically possible, although with local ex-farm values approaching the £100/T mark, it was a reluctant sell for many.

In hindsight, the majority of wheat yields more than compensated for the comparatively low ex-farm values when compared to harvest 2012.

DEFRA believes that this year’s total UK wheat crop achieved a record 8.82 tonnes per hectare, giving a total wheat crop of a provisionally estimated 16.2m tonnes (final figures are forecast to be in the region of 17m tonnes).

By early September, the London LIFFE wheat future for November 2015 had further retreated to £110/T.

But what should we expect for 2016?

The Northern Hemisphere has enjoyed another successful winter drilling period this autumn, although we are beginning to see some concerns emerge regarding the extremely mild winter experienced across Europe so far. Crops were well established prior to the cooling of temperatures and there are very few reports of either poor establishment or crop damage.

As for the Southern Hemisphere, this season’s harvest looks promising and a large exportable surplus is expected to enter the market place in the New Year. However, when we look back at the price trends of 2015, the peaks and troughs cannot be directly attributed to physical supply and available demand; they are linked to the market’s perception of the two.

For example, the peaks evident in the build up to harvest did not occur because of a physical decrease to stock availability, they occurred because of Russian politics, the instability of the Euro and changes to Chinese import requirements; all of which could have potentially altered the balance between supply and demand.

At the start of 2015, global supply and demand figures pointed towards a decline in grain values and they were right; spot ex-farm values have declined almost £40/T by the end of the year.

But, it is important to recognise that ex-farm values didn’t progressively fall in a straight line, they were constantly challenged by various issues which questioned the initial figures.

‘Over-supplied’ appears to be the current buzz word for global grain stocks as we head into the New Year and the latest supply and demand figures would suggest a further decline to ex-farm values should be expected.

But what about the peaks and troughs of next year’s graph? What about the weather? Will the dry weather in South America impact final yields? Will political uncertainty in Egypt, the world’s biggest importer of wheat, or elsewhere in the world change the supply and demand dynamic?

Will the ever changing sterling, Euro or dollar exchange rates move the value of UK wheat relative to that of other supplies around the world?

Are the numbers being quoted as ‘the fundamentals’ in the market even correct?

They have in previous years occasionally been wrong.

So if your target is to sell wheat above £120/T ex-farm, barley above £100/T ex-farm and OSR above £270/T ex-farm, are you necessarily wrong?

Well, some would say that Father Christmas does not exist, but for millions of children around the world he arrives every year. Merry Christmas!