Arable farmers will be heading to next week's Cereals event with an extra spring in their step, following news that wheat prices have reached a season high of £114/t and fertiliser prices are almost half last year's level.
But, while they will be surrounded by lots of shiny kit and permanently smiling salesmen, they should not be tempted into reckless spending on the expectation of better margins.
Hopefully the fertiliser price will have some more stability about it this season, but grain prices remain as volatile as ever.
The recent surge in ex-farm prices has been primarily caused by the "bull run" in the Chicago futures market.
This has been driven by three things - the weakening in the value of the dollar, the reappearance of commodity speculators and the weather. All three are fickle entities.
On the currency side of things, the weakening dollar is perhaps overdue and may well be sustainable. But while this is good news for US grain exporters, it makes the job of exporting UK and EU grain that bit harder.....
So far EU and UK markets seem to have shrugged this off, but the reality is that a stronger pound and euro against the dollar is decidedly "bearish".
Then there is the role of speculators. By their very nature, these people take positions in the market and close them out again in the search of a quick profit.
Yes, they add liquidity to the market, but they also add volatility. According to analysts Rabobank, the boost to prices they have given to Chicago in recent weeks now looks "overdone" and a correction is expected once the new crop arrives.
And then there is the weather. Much of the recent market rally is down to the wet conditions in parts of the USA, which has delayed spring plantings, and dry conditions in parts of Europe, which is challenging crops.
But a progress report from the USDA at the start of this week confirmed that much of the US crop is in "fair", "good" or "excellent" condition, while central Europe looks set for a splash of rain over the weekend.
On top of this, growers should not forget that the world is still on target for the second biggest crop ever, and production of wheat in 2009/10 is still going to exceed consumption, leading to a further recovery in stocks.
The outlook is undeniably encouraging, but it's early days yet.
* For more blog postings click here. And why not sign up for regular email alerts
| Tweet |
|
Leave a comment
Want a user icon? Get a Gravatar!