29 August 1997

Healthy rise in grain price, but for how long?

By Philip Clarke

GRAIN markets have shrugged off the recent green £ revaluation, with prices edging higher this week, despite the drop in intervention.

With feed wheat now quoted at £82/t ex farm for September, values are at a 12 week high and considerably better than the £72/t it was worth at the end of July.

Continued slippage in the value of sterling (to 2.91DM as FW went to press) and lack of farmer selling are the two principal reasons for the stronger market, says trader Robert Daniel of SCATS Robertsbridge. This has also helped barley gain about £4 in the past fortnight to £72/t.

There is some activity to the ports, he says, as shippers look to cover their short positions. And there is plenty of domestic demand from feed compounders and millers who anticipated a rush of selling at harvest, only to find farmers putting grain into every inch of storage they could muster.

The big question is whether the recent upturn is the start of a long-term recovery, or just a temporary rise into which farmers should now be selling. Arguments can be found for both schools of thought.

"All the bearish news that was out there in June and July – the huge plantings in the southern hemisphere and the good state of crops in the northern hemisphere – have now gone," says Will Fox of shipper, Continental Grain.

Instead the market is characterised by reports of a 23% drop in the Canadian wheat crop, a 21% fall for Argentina and a 32% drop in Australia, which have already led to firmer world markets.

Closer to home, traders are also trimming their UK wheat harvest estimates as rain continues to batter the 40% of the crop still out in fields. Richard Whitlock of Banks Agriculture puts the harvest as low as 14.3m tonnes compared with last seasons 16m tonnes.

But regardless of the size of crop, it is quality that will really set the tone for UK farmers for the rest of the season, and on this front there are some genuine concerns.

"In general terms, crops in the south and east should make the 74kg/hl specific weight and 225 Hagberg minimum export specification easily. But those in the west and north will struggle," says Cargill trader, Andy Bury.

If farmers hang on to all this grain and it is of insufficient quality, it will only depress prices later in the season when fresh export business does materialise.

Merchant Allied Grain is certainly expecting a two-tier market to develop, both in the UK and on the Continent, with premium prices for better specific weights, and the rest of the crop depending on domestic buying interest. &#42

One of the first crops of winter wheat to be cut in Scotland was taken this week at Mains of Kinmont Farm, Bridge of Earn, Perthshire. Low specific weights are emerging as a particular problem for many northern crops, says North Eastern Farmers arable manager, Douglas Gray.