Global Grain Insight: more downward pressure looms

With little change in expectations of comfortable forthcoming grain harvests around the world, further downward pressure on new-crop prices could be a feature of the UK harvest period, says Nidera’s David Eudall.

In the April Global Grain Insight we highlighted the potential quality and volume of EU and Black Sea grain crops and over the past three months weather patterns have been extremely favourable for the development of all northern hemisphere grain crops.

Anticipation of high yields has resulted in the LIFFE November 2014 futures falling by nearly £20/t in the last three months, trading as low as £136/t through the second half of June, the lowest level in over four years.

As we look to a second consecutive year of stock building on global grain balance sheets, new-crop grain could be very difficult to market as prices are close to cost of production and the market shows little sign of a volatile upside.

David Eudall
barley and wheat trader
Nidera

After seeing a dry winter period, the US winter wheat crop suffered unfavourable rainfall at harvesting resulting in poor quality for some crops with lower than average bushel weights and some instances of mycotoxins.

While the yields of US crops still look good, the full picture on quality won’t be available until the harvests progress north into Ohio in the coming weeks.

In terms of feed grain, US corn is in excellent condition with some of the best crop ratings seen at this point in the year. Over 75% of the crop has been rated good or excellent compared with 65% a year ago.

Mid-June rain produced some flood concerns in northern states but crop damage is minimal and subsequent thoughts are that the rainfall will boost crop development. Without further rainfall and flooding or a sudden extreme drought, the US corn crop is heading for another bumper year.

From a European standpoint, little unfavourable weather for crops has been experienced. Harvests have begun across southern and eastern Europe with a few minor disruptions from rainfall. Recent rain in east Europe may benefit later developing spring crops but early harvested winter crop quality has suffered.

The French winter barley harvest is well under way with good yields and quality – nitrogen levels about 1.7%-1.8% – so malting barley premiums may come under pressure in the next month.

There is still plenty of time for southern hemisphere crops to grow before harvest, however. Nidera’s Australian office reports the planting period has progressed well with needed rainfall and crops are emerging in good conditions.

Reports of an El Nino, which would potentially bring drought later in the year, have lessened in recent weeks but it is still an area which needs monitoring closely. It’s unlikely, however, any potential supply disruptions in Australia will dull the impact of a large northern hemisphere crop.

There could be short-term rallies in the market from technical trading and disruptions in harvest progress, but time has almost ran out for a significant weather-related rally.

Few would dismiss the potential of external shocks to markets, but from a purely agricultural supply and demand position, there is very little to sustain a long-term rally and ongoing pressure from physical supplies can be expected during harvest.

Prices have already moved significantly lower and we may be close to the bottom, but there is little reason to expect a surge upwards anytime soon.

Effect on the UK

UK crops are developing well and rainfall towards the end of June will benefit wheat crops starting to show signs of stress after a period of dryness.

As far as new crop is concerned, there remains a large amount of farmer selling to come and this may manifest itself in strong pressure on harvest movement prices.

The larger crop will give greater export potential but UK prices will need to remain competitive against Black Sea feed grains to recoup business after two poor years of export tonnages.