5 April 1996

Tighter supply brings big rise in feed wheat prices

By Philip Clarke

FEED wheat prices have surged in the past 10 days as merchants reassess the balance sheet for the rest of the season.

Whereas a month ago the news was all bearish, with Brussels restricting exports and large volumes of grain still believed to be on farm, the situation is now looking much tighter. As such, ex-farm values for April are quoted at about £122/t compared with £115/t three weeks ago.

Last week alone May futures values hardened by almost £5 to about £126/t, though they softened a touch at the start of this week. "The situation is starting to resemble that of the past two years. On paper there should be plenty of grain left but the reality is somewhat different," said chief grain trader with Viking Cereals, David Balderson.

In particular he points to higher than predicted animal feed use and the late spring which has hindered crop development.

"If harvest is put back a week or two, and remembering this season got off to a very early start, we could be looking at a 13-month crop year. That will make things pretty tight."

At todays prices, UK wheat is just about competitive with French old crop, observes Usborne trader Nick Oakhill. And, though there is little new export business in sight, given the forward orders on the books and the higher animal feed figures (5.6m tonnes) he reckons there is just another 350,000t of surplus wheat to get rid of.

"Depending on how well the crop in the ground now grows, I believe this market could go higher," he said. A straw poll of farmers had shown there to be much less on farm than previously anticipated.

Merchants Allied Grain also suggested some of the recent price hike was due to City fund managers taking an over-simplified view of the BSE situation, buying up wheat futures in anticipation of an upturn in demand for pig and poultry rations.

Whatever the validity of that argument, BSE has certainly weakened the value of sterling as the implications of any kind of slaughter policy on Treasury funds sink in. This has aided export competitiveness.

Barley values have also benefited, in line with the stronger feed wheat market, while milling premiums have improved slightly.

New crop wheat has also strengthened as concern about the state of the US crop deepens. "The UK looks cheap against US wheat at present," says GrainCo managing director Tim Pollock. But he doubts if this will lead to much new Third Country business, as Brussels is expected to continue taxing exports into the new season. &#42