Well, I have had my Covid-19 vaccination. I’m in a “high risk” group but that’s because as I trade grain, I have a high risk of losing money! My trading book is always perfectly balanced, so whichever way the market moves I could lose money.
So, we have had the big correction in old crop wheat values, with some £19 coming off the top of May 2021 futures. Some UK flour millers have indeed ‘sold back’ domestic milling wheat in favour of importing German milling wheat up to harvest. This has meant that on-farm milling wheat has had to be rolled forward and the group one milling premium has also evaporated for the time being. Feed barley, albeit at a £40 discount to wheat, remains in demand. We have exported two cargos of malting barley post Brexit, with feed barley also being shipped. Most wheat consumers stocked up well before Christmas and have enough to keep them going for another month or two.
We all know that the UK still has to import a lot of wheat and maize to see us through to harvest. Up to the end of December, almost three million tonnes of wheat and maize came in. We probably still need the same again, but as maize is very expensive, this means that even more wheat may be required. The EU is close to exporting all of its supposed wheat surplus and is still going strong.
The February USDA report says it will only have 26 days’ supply left to see it into new crop. Russia has created huge uncertainty by imposing a €25 export tax in February which increases to €50 in March. For harvest, Russia is proposing a complicated ‘floating export tax’, which has confused their farmers. They don’t know if they should start selling the wheat they have been sitting on, or whether they should even plant the next crop. This is certainly strange behaviour for the world’s biggest exporter of wheat.
The February USDA report also took the sting out of the market creating extra stocks by reducing the US export numbers. Give or take a bit of alleged winter kill in Russia and Ukraine, there is still no real story on weather which could affect next year’s world crop. I think there will be, whether it’s a lack of spring planting in Russia or a drought thereafter, that will cause a spike in price. In the meantime, while end users have cover for now, they will need to buy more wheat after Easter. I cannot see why anyone would offer imported wheat to the UK at less than the current high prices, so there should be another chance to sell old crop wheat on the back of that spike and some new crop at the same time.
China remains as inscrutable as ever. It has played the world grain trade very well and won. It had been quiet for the previous three months, but when world markets took a hit at the end of January it popped up and bought six million tonnes of maize cheaply.
It’s the Chinese New Year of the ‘Ox’. Over the past six months they have not only been buying soya, maize, barley and wheat, holding over half of the world’s stock of maize and wheat, but also copper, tin, coal and other commodities. While the UK was taking five months to import almost three million tonnes of wheat and maize, China was importing and consuming two million tonnes of soya per week.
Maize imports are up from almost seven to 24 million tonnes this year, so far. I cannot see China backing away from the world market any time soon. It has already bought over two million tonnes of new crop barley from France and Canada. After throwing Australian feed barley under the bus, it has decided to buy Australian wheat again after all.
China has also been talking to Germany about sorting out protocols to enable trade between the two countries. The switch from Australian to French barley created a new dynamic big boat barley trade from Rouen. If the same happened with Germany, we would have another premium export market on our doorstep in western Europe. Because world demand for barley has outstripped production in the past year, world stocks will fall by about two million tonnes by June 2021. China has already imported over two million tonnes more barley than last year. You have heard me say many times – ignore what China says, but watch what it does.
I repeat my view that we have about four months of ‘grace’ during which the tight supply of wheat in the UK and Europe means prices are unlikely to change much. If they do it’s more likely to be a spike upwards because of some new world weather problem. The wheat crop in the northern hemisphere remains dormant and it will be some months before farmers are confident about new crop prospects. The difference between the UK being an importer of wheat, as we have this crop year, and an exporter, is £15 per tonne. The differential between old and new crop is £35 per tonne. So, there is plenty of room between the wallpaper and the wall.
