Last month I said the wheat market had “already reached the bottom and should not return there.” That has proved to be correct, so far. We remain £5 off that bottom and it has been £5 better than that in the last month.
Feed wheat values slipped away towards the end of October, but much of this is due to currency; having been up to 74.5p sterling has now strengthened to 71.80 as I write this on 26 October. Having managed to just about claw our way to a competitive position on exports, we really could have done without the exchange rate torpedoing us in this way. That said, farmers have followed our advice and sold a lot of wheat in the last month to keep the market going forwards.
Openfield has also played its part, as the leading UK exporter, with cargoes being shipped out of every port from Montrose to Sharpness. So well done all around. The old saying is “he who rides a tiger dare not get off.” This is so true of the current wheat export market: neither we nor the farmer can afford to stop selling, otherwise the market may stall.
Because the export figures are two months in arrears, no one really knows what has been shipped. I reported last month that only 100,000 metric tons (mt) of wheat was shipped up to end of September; with luck another 300,000 mt could have gone in October. Similar figures for November/December could see exports close to one million tonnes by Christmas. I know that’s very optimistic, but the reality is that’s what we must do, if we are to have any hope of shifting more than 2.5 million tonnes surplus.
We have the advantage of having good quality feed wheat this time. A number of our international competitors are trying to sell their “geese as swans” and are offering milling wheat, and not being very interested in selling feed. That’s good for the UK: we are now the cheapest source of feed wheat in the world.
The Black Sea has almost sold as much as it can, before the ports freeze up for winter. Russia claims it has already sold nine million tonnes of wheat for export. Anyone can sell milling wheat that will always have an intrinsic value this year. But you have to let feed wheat buyers have it when they want it.
During October, values were supported by weather market scares, mostly about supposed drought in Russia, Ukraine, Australia and the United States. With rain these concerns have evaporated. But it did bring several large buyers to the trough: Taiwan, South Korea, Algeria, Egypt and I guess they also thought the bottom of the market had been reached.
With some big boat trade done, feed barley is about £10 above its harvest low. Brussels has now issued export licences for 4.1 million tonnes of barley, compared with 2.9 million tonnes last year. Despite the delaying tactics France has now begun shipping big boats to China. But the international feed barley trade will be a much longer drawn out business than last year, and it may be well into the new year before feed barley gets near to trading at parity with export feed wheat (and that maybe because wheat has not increased in value). Openfield has shipped six cargoes of malting barley so far; spring barley cut before the middle of August is of very good quality.
However, post-rain barley with a weathered appearance invariably has pre germination which you cannot detect except in the laboratory; and split or sprouted grain, which you can. If you add to that high moisture, and the inability to blow cold air through the barley to condition and keep cool, then loss of germination and malting premium is the likely outcome. So please make sure you have any post rain malting barley tested again before you load it out. After allowing for 30% of the UK spring barley failing to make malt because of lost quality, we still have about 500,000 mt of surplus to export or sell as feed. Openfield has its usual exporting malting barley programme right through to June 2016; it will need it to liquidate the surplus. Beer sales continue to fall; China was a big emerging beer drinker, but its recession has stopped that. Even Scots whisky sales are in decline, as stocks have to be financed for up to 16 years.
To summarise: keep selling wheat especially while there is a carry; milling wheat should always be worth its premium this year; malting premiums won’t increase; hold feed barley for a big boat; oilseed rape will hold its price and increase when sterling weakens; and that will be when the European Union referendum date is announced and all the financial institutions panic and start selling sterling just in case we should exit the EU. Lastly, South Africa and Argentina playing off for third place in the World Cup is like two bald men fighting over a comb.
