Grain pressure calls for careful marketing plans
© Tim Scrivener Grain prices have fallen in the first few days of new year trading. This put spot feed wheat prices in a range from £100/t ex-farm in north-east Scotland, with the highest ex-farm values in Shropshire and Yorkshire at up to £106/t (see ex-farm grain table, p132).
US markets hit new contract lows on Monday and, while worries over Chinese economic prospects and Middle Eastern tensions added to the mix, the main issue continued to be too much grain and very little demand, said traders.
See also: Mild weather means growers should check grain stores
Better grain marketing
With arable profitability looking challenging, good marketing could help manage volatility as well as develop resilience, said Mr Watts. He offered five steps to improve grain marketing:
- Interrogate production costs – but be careful not to base marketing on costs alone.
- Plan and regularly update cashflow to help prevent forced selling in the spot market.
- Many factors will keep markets uncertain, so keeping up with market information and knowing when rallies happen will be vital in achieving satisfactory prices.
- Identify how much price risk the business is able to take. Sensitivity analysis is a must.
- Challenge standard approaches such as planting as much land as the weather allows, regardless of price; being an active “non-seller”, marketing only when necessary.
With both the Ensus and Vivergo biofuels plants out of action (Vivergo is closed for maintenance) and export business still very challenging, spot interest in wheat was very low.
Ex-farm feed barley was generally worth £95-£97/t spot, with up to £100/t achievable in some port catchment areas as barley exports continue at a proportionally better pace than those of wheat.
Forward pricing is encouraging farmers to commit to grain for collection later in the season, with the futures market offering a £7/t carry between January and July.
There was evidence from the Corn Returns information collected by AHDB that growers were taking advantage of this, said Jack Watts, lead analyst, cereals and oilseeds.
“Farmers are responding to the market signals very well. There’s more weighting of commitment to forward months,” he said.
Two main factors contributed to this. First, the growing investment in on-farm grain storage of recent years had increased capacity, despite some very big crops. Second, farmers had been able to access the cash to fund keeping the grain for longer.
While the forward market made it worthwhile to commit to store grain, AHDB analysis of the price of uncommitted grain in the January to July period shows in seven of the past 10 seasons, it has been worth less by July than in January. “In the three years it did rise this was down to a combination of poor weather and low old-crop stocks,” said Mr Watts.
This was not the case this year, pointing to the probability of old-crop prices falling.