Bearish outlook for cereal and oilseed prices

Cereal and oilseed rape prices are likely to remain under pressure over the next few months, as markets remain well supplied and the true size of the world crop emerges, according to grain co-op Openfield.

It predicts 2009 UK wheat production could be higher than the NFU’s estimate of 13.9m tonnes at around 14.3m tonnes, which combined with a 2.7m tonne carryover from last harvest will result in total supply at just over 18m tonnes – compared with 20mt in 2008. Assuming demand is around 14.1m tonnes that leaves an exportable surplus of 2mt and potential carryover to 2010 of another 2mt.

“The yield picture for 2009 is still unclear, but fundamentally we will have a surplus which has to be moved sometime,” Openfield’s head of wheat, Mark Worrell said.

“Across the northern hemisphere crops have been better than expected, while demand is down. The Baltic regions have been particularly aggressive wheat sellers due to a reduction in domestic demand and large carryout. UK wheat just isn’t competitive at today’s prices [of around £88-90/t], but the decent quality we have could provide some opportunities to sell.”

Some extra UK demand could also come when the Ensus bioethanol plant starts production, but that may not be until the end of the year or into early 2010, he suggested.

Barley under pressure

Malting barley markets also faced a difficult time as the recession had reduced demand from traditional brewing and distilling markets here and around the world, Openfield’s Nick Coe added. Spot prices were down to £85/t ex-farm this week, which was well below the £115-120/t many growers needed to breakeven, he said.

“A few growers did manage to lock into contracts when prices peaked at £180/t several months ago and others managed to get £140-160/t, but the majority will still be looking to sell onto spot markets.

“We expect premiums to remain pressured throughout the campaign, probably below £5/t, if not parity. EU-27 surpluses will make it difficult for the UK to capture a higher share of the available market.”

Plantings were forecast to decline considerably due to the low prices. The firm’s own winter barley seed sales for 2010 harvest were already 20% down on last year and spring barley was likely to be down by a similar amount, he said. “This could tighten the supply and demand situation, but given the carry-outs from the 2009 crop across the EU, it’s likely to be 2011 before markets have a tighter feel.”

Oilseed rape doing better

There was a slightly better news for oilseed rape, where prices had remained relatively firm in the face of a bigger than expected harvest. “We’re still seeing prices around £215/t ex-farm, which means some growers could be getting £260/t including bonuses,” said Openfield head of oilseeds John Thorpe.

“Many traders here and across the EU underestimated how well crops would compensate for the difficult autumn last year, so it might be worth selling at those sort of prices.”

Openfield predicted oilseed rape production across the EU could be up to 20.3m tonnes this season, around 1mt above 2008/09. “At the moment there’s little selling going on because there was huge store intake and crushers took good cover expecting a small crop. In the short-term I’m quite bullish, but looking further ahead there could be a lot more rape about than people thought. It’s difficult to see an upside at the moment due to the size of the carryover.”