16 October 1999

Market ripe for exporters

Are you fit enough to survive? That depends on how well you can market your produce, say speakers at the HGCAs London conference. Lucy Stephenson reports.

WAS this years wheat crop such poor quality after all? HGCA economist Gerald Mason is not so sure. Exporters looking for milling wheat will be pleasantly surprised: hagbergs in over 70% of group one wheats were above 260, he says. So growers beware: current high milling premiums may not be sustained through the season.

The good news on the wheat front is that the French harvest wont push prices down as it did last year. A better quality harvest and more storage space will underpin the French market, and provide a better base-price for UK wheat, says Mr Mason.

Rape prices wont recover in the near term, according to HGCA economist Heike Hintze-Gharres. The global oilseed rape crop is up 5m tonnes to 41m tonnes this year. Annual growth in consumption has slowed and stocks are likely to increase. Add to this a predicted record US soybean harvest and the prospect for price in the next few weeks is downward.

Barley prices are up this autumn; availability is down due to lower intervention stocks and a very small Spanish crop, and strong demand outside the EU has buoyed prices. However, spring may see a downturn in price as other crops come onto the market.

Barley quality this year is almost too good. Seventy to 80% of the 1.6m tonnes Scottish barley harvest is malting quality. With total UK usage of just 1.8m tonnes, the pressure pushing the malting premium to just £5-10/t will continue. Growers should turn their attention to exchange rates affecting the feed price, suggests Mr Mason.

Coping with the euro

It will be 2003 at the very earliest before the pound is irrevocably linked to the euro, so businesses will have to cope with the euro as a parallel currency for some time to come, says HSBC economist Mark Berrisford-Smith.

"I cant offer you any cheer that the pound is going to fall to levels farmers will find acceptable. But in the short-term, the pound:euro exchange rate probably wont get any worse," says Mr Berrisford-Smith. "Last year growth was stronger in the UK and weaker in Europe than we expected, but in the first quarter of next year the euro may start to strengthen."

Crop futures

UK wheat could be trading at world prices earlier than expected: next year. "Chicago wheat futures for November 2000 are higher than the intervention price, at current exchange rates. Harvest 2000 could see UK farmers concentrating more on the exchange rate of the £:$ than the £:k," says Mr Mason.

Oilseed rape prospects? Growers have reacted to lower prices, so there will be a smaller oilseeds harvest next year. Over the next two to three years it will be price, rather than lower aid, which will influence plantings, according to Ms Hintze-Gharres. Longer term, demand for oilseeds is expected to continue to increase because of world population growth and greater demand from recovering Asian economies. Add to that less enthusiasm to grow oilseeds worldwide, and prices should recover in the medium to long term. Meanwhile UK oilseed rape growers are likely to receive less this year than under the first two years of Agenda 2000 when aid starts to be scaled back.

But prediction is not the issue

Prices are never predictable so lock into a system that protects you from market volatility – risk management, says HGCA director Alastair Dickie.

"Everybody likes to have a feel for where prices are going to be but no-one knows for certain and should you care? Build a system that enables you to react, to exploit volatility. Use marketing tools – futures, options, and pool marketing – to give extra certainty," says Mr Dickie.

Be prepared

The breakeven point for Australian wheat growers is £84/t compared with the UKs £70/t. Much of the difference is in transport costs, but Australian growers receive no government support, and rely on trade liberalisation to allow them to compete, points out Tony Russell of the Australian Wheat Board.

Half the Australian wheat farms have vanished since 1960 but those that have survived have done so by improving productivity, technology and cost-cutting. Australian wheat yields are just pushing 2t/ha, yet production will exceed 20m tonnes this year. Eighty percent of wheat is produced by just 20% of growers.