11 April 1997

Currency and weather conspire against grain

By Philip Clarke

TWO forces are working in opposite directions in the new crop grain market, namely currency and the weather.

Sterling has continued to firm this week, breaking through the Sept 1992 level, when the UK was forced out of the Exchange Rate Mechanism. Normally this would undermine the UKs export competitiveness and force down prices.

But countering that pressure is the growing concern about the lack of rain, not just in the UK, but right across Europe and into north Africa. Spain has not seen useful rain for months and Glencore Grains Madrid office is predicting a wheat crop of 16m tonnes compared with this seasons 21m tonnes. That would open up the Spanish market to UK exports again, and create more openings in Italy, which has largely been supplied by Spain this season.

Closer to home, late-sown winter crops and wheat on lighter land are already showing stress due to lack of sub-surface moisture. While it is far too soon to say what this might mean come harvest, there is a view among traders that the 2% rise in the wheat area will at least be offset by lower yield.

As such, new crop values have been firming. As FW went to Press on Wednesday, it was quoted at £97/t ex-farm for November.

At these prices, UK wheat is currently on a par with French new crop. But given the French freight and quality advantages, the gap will have to widen as harvest approaches if the UK is to generate export business. That could either be because the French market firms further, or because the UK market softens, says James Marshall of Usborne Grain.

The weather will be a key determinant. But, with France already introducing irrigation restrictions in key grain areas, the potential is for the market to go higher.

That is certainly the view of Banks Agriculture wheat director, Richard Whitlock, who has sold less than 5% of the 300,000t of grain committed to his companys pools.

But farmers who are concerned about a sudden downturn in prices, if rains arrive, should consider taking out an option, he says. That way they can lock in to todays value (for a cost of about £3.50/t), but still benefit should the drought take hold and prices climb further.n

Spring drilling in full swing at Mains of Cargill, Perthshire. Despite the proximity of the River Tay, moisture has not been plentiful. But, as drought fears rise across the country, what is the prospect for new crop grain prices?