Grain growers need low-price strategy to deal with market volatility

Growers need to develop a low-price strategy for their business, as market peaks and troughs are likely to become more extreme.

As well as considering crop marketing, that strategy might involve mothballing areas, questioning intensive winter cropping, using cover crops, taking out cost – for example, by preserving machinery – and generally challenging the status quo, said Jack Watts, lead analyst with AHDB Cereals and Oilseeds.

“This is the most challenging year in which I have had to pull together an outlook – prices know no boundary,” he said at the levy body’s Grain Market Outlook Conference in London this week.

“If the past 10 years haven’t convinced businesses involved in grain that price risk management is critical then they never will be convinced,” he said.

“Global wheat production is strong but not perfect everywhere,” he said. “Don’t be surprised if there is heavy spot supply but the price rises – that’s what’s at play now.

“Keep watching the market and don’t ignore rallies; be ready to move when there is an opportunity as we have seen recently.”

Although spot prices were generally under pressure from an oversupply of wheat, markets were incentivising growers to store grain by offering more than the cost of finance to carry grain forward, he said.

For example, the difference between feed wheat prices from November 2015 to May 2017 is worth about £12.50/t after the cost of interest at 5%.

Chinese demand for wheat imports was an unknown but potentially important factor, he said. “China is a sleeping giant – its involvement in markets will oscillate in and out, but it is not a bottomless pit of demand – so things need to be put in place to capitalise on any opportunity.

“China is the world’s biggest producer and consumer of wheat apart from the EU but it can go from being the 23rd largest wheat importer one year to the fourth or fifth largest another year, so has the potential to be very disruptive.” It was also a large potential importer of barley, Mr Watts said.

Russia and Ukraine were very competitive on export markets, not only on price but also on quality, which needed to be recognised, he said.

The maize market continued to be an extremely important influence on wheat prices – this was the third successive year when there was no near-term concern for supplies of the world’s main feed grains.

However, with world maize production set to fall to about 8m tonnes below annual consumption, stocks would become more important and there was little resilience to the effect of future adverse weather for the crop.

“It feels like longer term there is a bit of risk in the global maize market,” said Mr Watts. “There is no strong price signal for producing maize for 2016 – so do not get complacent on feed grain prices.”

Transition Live

Find out more and get tickets