Grain traders are a pessimistic lot - at least, that presumably explains why they always seem to talk the market down, rather than up.
Last October, when ex-farm feed wheat had slid to £83/t, I asked a number of merchants what advice they would give farmers following 2008's difficult harvest. The resounding message was to "sell now", if not all of their crop then at least a decent whack of it.
Given the massive global harvest and the impending recession the market would only go one way, and that was down.
Since then, prices have climbed almost weekly, reaching £107/t this week - fully £25/t up on last October's low.
Of course, the collapse in sterling has been the main factor over that time, but not the only factor.
Last October, when ex-farm feed wheat had slid to £83/t, I asked a number of merchants what advice they would give farmers following 2008's difficult harvest. The resounding message was to "sell now", if not all of their crop then at least a decent whack of it.
Given the massive global harvest and the impending recession the market would only go one way, and that was down.
Since then, prices have climbed almost weekly, reaching £107/t this week - fully £25/t up on last October's low. Of course, the collapse in sterling has been the main factor over that time, but not the only factor.
Lower than expected production in the southern hemisphere, reduced plantings in Europe and North America and increased fund activity in Chicago have all lent support to the global grain market in recent weeks. There has also been reasonable export demand and, by now, about half the UK's 4m tonne export surplus has been shifted. The UK has even sold grain to the USA and China this season.
Some of this optimism is reflected in the HGCA's regular Market Report. Each week this includes a "summary of the week" in which it identifies three factors that are either "bullish" (positive) or "bearish" (negative). For the past six weeks, the bullish outscore the bearish by two-to-one.
So now that prices have climbed to £107/t, what do traders think the rest of the season has in store?
To be fair, most are now a bit more circumspect than last October, speaking of "uncertainty", "volatility" and the need for "risk management". But overall the consensus seemed to be that there was "probably more downside to this market than upside", and in no way could we compete with exports from the Black Sea region. Somehow, their pessimism did not come as a complete surprise.
Some of this optimism is reflected in the HGCA's regular Market Report. Each week this includes a "summary of the week" in which it identifies three factors that are either "bullish" (positive) or "bearish" (negative). For the past six weeks, the bullish outscore the bearish by two-to-one.
So now that prices have climbed to £107/t, what do traders think the rest of the season has in store?
To be fair, most are now a bit more circumspect than last October, speaking of "uncertainty", "volatility" and the need for "risk management". But overall the consensus seemed to be that there was "probably more downside to this market than upside", and in no way could we compete with exports from the Black Sea region. Somehow, their pessimism did not come as a complete surprise.
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Is this a declaration of war on the trade, Phil? :)
I should be so brazen! No, just an observation that, sometimes, they tend to skate over the good news that is out there. (Having worked as a grain trader in a former life I do, of course, realise that generally they are a cheerful lot!)
Thanks Phil for shedding some light on this gloomy situation I am always aware that grain traders are in it for a good deal but it hurts the most when they are right about the market. Let us all hope that the bull run continues!
I'm sure you'll be tackling this topic in one of your next posts, but I was with Simon Ward of Increment today, who was very strongly advising growers to lock into current grain prices using an option.
His exact words were: Any farmer who doesn't sell a proportion forward now - with an option - is off his rocker!
Good advice?
Not sure I'm qualified to give advice! But as an "observation", he may well have a point. Depends if he's talking about "forward" as meaning later in this season, or "forward" as meaning new crop. I think I'd like a bit more information about new crop before comitting now.
Generally, I think the HGCA's advice on this is pretty good - that if you see a price that makes sense and covers your costs with an acceptable margin, then take it rather than waiting for the extra £5 which may not come. Also, prices look OK for now, but much (not all) of this is down to currency. Trying to guess the next currency change is fraught with danger, but my own feeling is that sterling could well strengthen again in the coming weeks. I bloody well hope so, as I'm away skiing in March!
Phil I am skiing in france now and costs are scary so take a big wad with you or lots of sandwiches and prebook any equipment on line. Praps it is the sun and prices in france but i am optimistic for uk grain prices ;continuing sterling weakness, weather in europe and particularly usa /canada. Always interesting driving through France this time of year. I think the commodity boys will be investing in grains when they cannot get gold without a mega premium. Hope i remain this way on my return.have fun
Hi Phil,
You are right merchants are negative, but most people sell forward, either one month, two months or three months. Once the farmer has sold, he can not sell to another merchant, so the merchant has got his commission from that parcel of grain and no one else can get it. If the merchant thinks it is going up, he will not sell himself so becomes long instead of the farmer. I predicted three years ago that wheat would get to £200 per tonne sometime in the next five years. It did it in 2 years. It has got a very good chance of getting there again this next year. Neil
The cost of an options contract is far too much to justify for a single farmer. Your basically taking an equivalent risk to pool or direct marketing, as if the option is not excercised its money down the drain. Volatility is entertaining, but nobody's friend. I think there are huge pressures on yields this year- anything below 8t/Ha and your talking £140 production costs. I agree that values will rise, as I believe poor credit abroad for inputs has been underestimated, especially considering the context of what the grain yield would have mined out the soil last year, eg Ukraine. I also think Asian diets are not going to want to backtrack, and trying to link supply and demand in this way is naive and over simplistic.
Bullish John!
I am not sure why anyone thinks North American seedings will be down. We always plant everything to something. All the ballyhoo about late plantings this summer were for nothing, we raised a very respectable crop. This is a big continent, there is always a problem on part of it, but there is always another part of it that has perfect weather and makes up for the bad crops most years.
Ethanol plants are going broke, cattle numbers are going down, these are our two main consumers of grain. I am not and expert by any means, but I firmly believe we will look back to the grain prices of the last 6 months as "the good old days" for years to come.
I agree with Neil about prices. I realise the bad pound is helping and it may recover sometime, however since the world has had a good harvest and grain prices are still climbing there is room for optimism. World stocks to use ratioes are still low, this must be in our favour. I think we are in for an interesting future.
So we have a range of views from neil, at £200 and going up, to Kansas at below the current price (£107),and going down - the only thing that feels certain is more uncertainty, which must be bad news for farmers who need to plan ahead, but is probably better news for traders who can exploit market volatility.
Oh for goodness sake! Behind all their tiresome incomprehensible jargon (anyone tried reading a Grainfarmers/Openfield market report?), grain traders are as clueless about the future of grain prices as the rest of us. But if they can persuade us to part with our produce as cheaply as possible.....