20 December 1996

Price of grain looks set to remain low

By Philip Clarke

CURRENT depressed grain prices are likely to prevail for the next few seasons as world production outruns consumption.

The potential for world wheat output to increase was spelt out by Bidwells consultant Simon Ward at a meeting of Essex growers last week.

The recent run of high prices had encouraged farmers to look after their crops better, while genetic improvements had lifted yields.

Many countries – the US and the former Soviet Union in particular – had real scope to cut crop wastage. And the introduction of "freedom to farm" would bring more US land back into production, compounding the problems of a bumper Australian crop.

Compared with this, demand was relatively sluggish. Recent high prices for grain had encouraged feed compounders to use other raw materials in their rations, while the former Soviet Union was effectively bankrupt as a buyer.

Mr Ward also warned that set-aside was failing to curb production as the EU Commission had originally intended.

Between 1993 and 1995, for every 1ha (2.5 acres) set-aside there had been a 0.66ha (1.6-acre) drop in the wheat area as farmers elected to take other crops,such as pulses, out of production first.

This was still manageable. But by 1996, the price of cereals was so attractive that each 1ha (2.5 acres) of set-aside was only taking 0.25ha (0.6 acres) of wheat out. "Wheat had become so profitable that it made little sense to grow much else," said Mr Ward.

"By implication, set-aside is no longer a good weapon for keeping the crop within its GATT export limit."

The only conclusion was that Brussels would have to reduce the profitability of wheat. This could be done by cutting area aid, but was more likely to be achieved by holding back on export restitutions, allowing the market to set the pace.

"The current low price for wheat is unlikely to be an aberration," said Mr Ward. "I expect it to be in the low £90s for the foreseeable future."