Spring barley was just about to go into shut down mode. Winter wheat was struggling to cope with straw shortening chemicals and the lack of nitrogen uptake, but that has now changed for the better.
However, just as the rain eased fears about the growing crops – and caused the futures market to drop by £2 – sterling weakened from 84.50p to 85.70p and this restored some of the futures’ loss. Sterling weakened because of poor UK economic data: inflation is up to 2.7%, above the two per cent forecast. This means that the recent statement from the Bank of England suggesting an interest rate increase is unlikely to happen in the short term. Quite simply with wage increases falling below the retail price index/consumer price index, consumers already have less money to spend. Normally an interest rate rise would be used to keep the lid on inflation. Unfortunately, this would only make matters worse now, as it would further reduce consumer spending power, creating a potential recession. If the Conservatives maintain their lead in the polls, then the closer we get to 8 June the more sterling should begin to strengthen and offset the weakness caused by current inflation, which would be neutral for grain prices.
In the United States, there was some excitement for a couple of days when they had sudden snow storms and flooding in the wheat belt. But in a classic case of sell the rumour and buy the fact, Chicago futures shot up for one day then lost it all again! The subsequent United States Department of Agriculture/World Agricultural Supply and Demand Estimates report hardly mentioned the wheat crop downgrade. The US wheat crop is now enjoying good growing conditions.
We have had our own dry weather scare and it’s too soon to say that we are out of the woods or to assess what damage could have been done so far. We are too far away from harvest to start forecasting anything except to say that there is always a harvest and always a crop. But I have the feeling that some of the trade is still factoring in a weather problem of some sort, and given the higher than usual forward sales made already and the recent dry spell, it is not surprising that farmers are not selling much forward. The old saying remains true: that however big the forward price is that you are tempted with, if eventually you don’t have the wheat, the price is no good.
There is wheat from the Black Sea – Romania/Bulgaria – on offer to the UK, Ireland and the rest of Europe at about £144 and cost, insurance and freight free out for July. If you have a portside compounding mill or ethanol plant it won’t cost a lot more to land and use it. So that does put a ceiling on old crop wheat for now. There is also cheaper Brazilian maize on offer for July to Europe. Spain, one of the UK’s best customers, is predicting it will be five million tonnes of wheat/barley down on last year, so there should be a good chance of early sales there.
So while the new crop wheat market could improve a bit by £5, you could argue that it could also fall by £10/£12 – from its quite high forward value – if the UK has a better crop than last year and the imports start arriving in July.
In the bigger picture some are making bets as to how long President Trump will remain in office. This has caused the US dollar to weaken just when the euro has risen to a six month high. This is also bad news for European Union and UK exports to say Egypt as it makes US wheat a lot more competitive. If you ignore the weather, which you can’t, world stocks are still high on paper. But Europe, including the UK, will be carrying in less wheat than usual. Chicago and the French MATIF futures market are again close to recent market lows and hedge funds are still very short.
Last month I said leave alone selling new crop unless it rains. Well it has rained, but I still would not want to sell wheat or oilseed rape forward. Feed barley also looks too cheap to sell for “as available.” If we see the same discounts to wheat that we had this year, barley needs storing.
The old stock exchange saying was sell in May and go away. I think it would be better to just go away and sell nothing more for the time being.
