19 May 1995

Prospects for new crop grain look to be bullish

By Philip Clarke

NEW crop grain prospects are increasingly bullish, as shippers look to UK growers for early cover.

The most significant recent development came when sterling rallied against other EU currencies at the end of last week. In theory, this should have knocked £3 to £4/t off ex-farm wheat values. In reality, the markets were unmoved.

"Last Friday really broke the link between currency and price," says chief executive of co-op Viking Cereals David Balderson. "It proved there is real interest for new crop."

In particular, there has been a significant volume of business done with Spain, where drought has badly hit output potential.

Last week the EC also granted licences for 817,000t of French and German intervention wheat to China for July and August. "The commissions thinking is that, with a potentially huge wheat crop (over 171m tonnes) it will support this early export potential," says Glencore Grains Robert Kerr.

While this deal does not take any grain from the open market, it does cut into intervention stocks, leaving little for the EC to use to control market prices next season.

Frost damage

Other bull factors include recent frost damage and a dry spring in some parts of the UK. Further afield, US spring plantings are behind and world wheat stocks are at their lowest level since the early 1980s. Sterling has also shown some slippage again this week, which will have done no harm to export prospects.

Against this background, new crop feed wheat is valued up to £105/t ex-farm for harvest movement close to a port, rising to £109/t for November. Barley is about £2 lower.

Traders report a flurry of forward selling by farmers at these prices (which are still cheap compared with French new crop) with 20% to 25% of the 1995 crop believed to be sold.

Although the economic fundamentals suggest the outlook is a firm one, some traders are more circumspect.

"My concern is a budgetary one," says Tynegrain managing director Tim Pollock. "The commission does not like the numbers it is seeing and is under mounting pressure from the livestock sector and consumer groups to do something about it."

According to the ECs original arithmetic, grain prices for 1995/96 should be closer to £80/t, with area aid cheques set accordingly.