A year ago, as the price of feed wheat crept above £100/t having languished for the previous few months in the £90s, the merchants of grain and HGCA advised farmers to sell forward because the world was over stocked, demand had declined and such levels could not last.
Many took that advice and unloaded a proportion of the harvest expected in August. It wasn’t until June that the market took off and began the climb to where it is now – with a few stutters on the way. And the sound of grain growers kicking themselves has been heard across the arable areas of Britain ever since.
The catalyst that set the markets running was last summer’s unforeseen heat wave in Russia. But you can’t help wondering if that was the only reason. Had we, for instance, been misled by the pundits who told us world stocks were high? Would a mere 20 million tonne shortfall in one area of the world be enough to create such a price hike? Or might the experts have had an ulterior motive – like trying to hold the price down?
The short answer is I don’t know. Furthermore, although I read what pundits say every day I still don’t know for sure whose predictions are the most reliable, which are based on facts, or those that are mere guesses.
Faced with such uncertainty, some farmers regularly entrust their tonnages to merchants’ pools. We’ve never done it because I’ve always believed (or perhaps hoped) we could do better by trying to read the markets than by selling a few loads each month. All that achieves is an average return. You avoid the lows, but you never hit the highs. That said, we often get it wrong.
But trying to get it right takes more than a guess. You have to study production and demand trends, watch the weather in the main production areas, take account of currency movements and oil prices – and cross your fingers.
To be honest, you need specialist knowledge, a good contacts book and lots of time to do those things every day, and most busy farmers, myself included, rely on published data and talking to well-informed friends. I’ve been doing those things recently.
First, there was the recent report from the USDA revealing that current US stocks were well down on previous expectations. And the price of maize on the Chicago Exchange rose to equal record levels.
The report went on to say US farmers will plant as many acres as possible this year, but that the potential extra area is limited and what it produces will be insufficient to rebuild stocks. It also observed that demand for maize to produce bio-fuel remained strong – a reflection, no doubt, of the soaring price of oil, which helps makes ethanol viable.
Against that, it’s expected Russian production will return to normal this year – drought permitting – and it should start exporting again. Meanwhile, China has recently bought a number of big maize shipments to satisfy the needs of its increasingly demanding urban population.
However, nobody has suggested volatility is over. The experts all say the pattern of the past few months – when wheat and maize values have gone up and down like yo-yos – is set to continue. But behind the dramatic ups and downs on the graph indicating how prices have moved faster and further in a few hours than in a whole season a few years ago, there is a strengthening consensus that the overall price trend will be upwards.
David Richardson farms about 400ha (1000 acres) of arable land near Norwich in Norfolk in partnership with his wife, Lorna. His son, Rob, is farm manager.