With the critical decisions that Mr Putin must make now, Shakespeare’s quote: “Uneasy is the head that wears a crown” from Henry IV part 2, seems very appropriate. Meantime all the grain markets can do is wait for the next news headline and react to it. The Financial Times reported that significant progress had been made in peace talks and the French and US futures plunged to their limit down. But there have been more limits up than down of late, making market price reporting a waste of time, because as soon as you write it down it’s out of date!
The whole world knows now, if it didn’t before, just how much wheat, maize, barley and sunflower seed is supplied from Russia and Ukraine. It’s so much that at this late stage of the trading year, it’s hard to see which suppliers can actually fill the deficit. If there should be a cease fire, even a short one to bury the dead, that would cause the markets to fall just on sentiment. But they have already risen so much that they would have a very long way to fall to get back to anything like the levels they were before the conflict started.
Simple maths suggest that Ukraine has about 13 million tonnes of old crop maize and four million tonnes of wheat that were due to be exported in the next few months. With the damage to the infrastructure and seaports, like Mariupol which has been flattened, plus all the harbours being mined, that is not going to happen. So where will that expected maize and wheat come from?
Keeping on old crop, the EU has been a huge importer of Ukrainian maize and wheat. Don’t forget that the EU granted Ukraine levy-free access for significant quotas of both; well we can whistle for that now! In the short term some other usual exporting countries are saying that they want to hold onto, or hoard, stocks of grain. Russia has an export ban in place and because of sanctions a lot of countries cannot buy from them now anyway.
So even when the fighting stops it will be some months before grain exports by ship could resume, but exports to the west by train should be possible. As I have stated many times, UK old crop wheat was always going to be ‘very tight’ even before this conflict. June was always my bet for the top, when our wheat ran out; well, having just bought some feed wheat at £300 ex-farm, I think we can say that the expected June peak has already arrived.
Of course, feed barley has benefitted from this but you must remember that barley has a shorter fuse than wheat as we will have new crop French in June, so sell barley first before the wheat. Malting premiums have disappeared on old crop as feed barley has pushed up in price and maltsters are full up.
Turning to new crop, since the conflict “weather stories” have receded into the background. Ukraine has half its spring barley crop to plant, but not much wheat; still, without the manpower, energy, fertiliser and opportunity it’s difficult to see how they can do that. Also they will have to husband and eventually harvest their winter crop, so it’s a good job there are six months still to go before that crop comes to harvest.
As I said, prices change so fast it’s pointless reporting them. Today there’s about a £50 discount for new crop wheat compared to old crop UK, but should there be? With reduced fertiliser we only get the same size crop as 2021. We must not forget that only huge early season imports in July and August kept us going. But even with those and the usual milling imports, we will probably still run out before next harvest.
If we could be faced with a similar scenario for harvest 2022, old crop and new crop wheat should come together on price at some point. If the conflict continues and old crop wheat does not fall, why should new crop be discounted by £50? Again, I say even new crop barley is different to wheat because no one can doubt that we will have a big exportable surplus of barley, both feed and malting. So there’s no reason why we should be short of barley between July and December.
Just finishing on a sobering note. Don’t forget no market goes in the same direction forever! Every day that goes by is a day closer to this conflict being resolved. So to finish with Shakespeare, Julius Caesar was warned “beware the Ides of March”. In 44 BC he was assassinated by his fellow senators as certain things had not gone to plan. I don’t know when you will read this but I won’t be surprised if this conflict has been sorted out, in some shape or form, by the end of March.
