31 December, 1997

By FW reporters

A SLUGGISH first half to this seasons export campaign has limited the prospects of a cereal price recovery in the first six months of 1998.

Trade estimates of the amount shipped by the end of 1997 were well down on 1996 at 1.2 million tonnes. Barley exports have been even slower, especially for Third Country business, and Brussels has missed several opportunities by not granting export licences.

The problem is exacerbated by a high carry-over of old-crop stocks and an increase in the predicted level of imports. Total cereal availability, according to the Home Grown Cereals Authority, is only 500,000 t less than 1996, which was itself a record year.

Quality has also limited price expectations. About 30% of the UK wheat crop is below 72kg/hl specific weight. The net effect is an increased supply of feed grain, with UK suppliers discounting prices considerably to compete with higher quality French and Danish material. These reductions have been passed back to growers.

But the expectation now is that things will not get any worse – in grain-trade speak, there is very little downside.

On the quality front, the worst could be over. The further farmers dig back into their barns, they reach earlier-cut samples of better quality. And some farmers have done a good job grading and blending their grain to raise specific weights.

Predicting future movements is foolhardy, with the Pound ranging from almost 3DM to 2.88DM during December alone. But better times could be ahead. Economists predict a slowdown in the UK economy, no further interest rises and a gradual weakening of Sterling during the course of 1998.

Whether Sterling falls enough to trigger green devaluations remains to be seen. But it seems that further revaluations, cutting intervention support and area aid, are unlikely. Sterling would have to rise above 2.99DM and stay there for two months for this to happen.

The trade remains guardedly optimistic that official wheat estimates put out in September may overstate the actual crop. And combined with the fact millers have been reducing their estimates of their import requirement, (from 1.3m tonnes to 1.1m tonnes), while animal feed usage is up, the domestic market looks a bit tighter.

But that does not escape the fact there is still about 2.2m tonnes to export and some of that will have to go to Third Country destinations. Brussels is expected to maintain its tight line on export subsidies and that grain will have to fight hard on price to secure a home.

World prices are not expected to stage much of a recovery in 1998. Contrary to earlier expectation, the El Niño weather pattern has not disrupted Australian and Argentinean crops too much, and these are now being harvested. Plantings of winter wheat in both Europe and the USA are also up, pointing to another big crop mid-1998.

At best, farmers can look forward to a gradual improvement in prices for wheat. But intervention looks like being the main outlet for barley – unless Brussels radically rethinks its export policy.