The only certainty is uncertainty

A few days ago, along with other farmers and traders, I sat through three hours of statistical analysis of world grain markets at the HGCA’s Outlook Conference.

Appropriately for commodities traded around the world, the information included reports on production, stocks and usage around the globe. I don’t know how the rest of the audience felt, but the more I heard the more confused I became. The only conclusion I came to was that volatility is here to stay.

For there are probably more variables these days than ever before.

Let’s look at a few of them. Global grain supplies are now in deficit for the second year running. That is to say, the world is using more than it is producing. The situation is most acute with maize, with stocks falling to only 13% of demand – the lowest ever. And maize is now in its third deficit year despite high prices and margins leading to increased acreages grown. A significant contributor to this is the amount used for bioethanol, mainly in the USA, where more is now used for fuel than for feed.

World wheat stocks, on the other hand, are reckoned to be relatively healthy, even though the crop is losing acres to maize. Maize is the basis for 70% of animal feed around the world and wheat only 15% and that is relevant. This may change as the feed trade uses more wheat instead, which should support its value.

But Black Sea wheat is now available again following a successful harvest this year and the relaxation of export restrictions imposed after last year’s drought. Buyers began to rely on discounted supplies from that area, which is the main reason why UK ex-farm and futures prices fell sharply in recent weeks. Then, to confuse matters again, Russia announced it may impose a floating export tax.

Other factors influencing variable values include the world financial crisis, resulting currency fluctuation and speculators who turn their attentions to grain when the price of commodities like oil, heavy metals and other unrelated substances go against them.

Most of which is a million miles from a corn field but, like the timing of sales, it influences the prices that growers get from merchants, and whether or not we make a profit. As the chairman of the conference, HGCA board member Michael Hambly said: “Marketing is the key to profitability. There’s been a £90/t difference in this crop year alone.”

I hoped, when HSBC senior economist Mark Berrisford-Smith spoke, that we would hear a solid forecast on the direction prices might take. And sure enough he suggested he saw no reason why spot feed wheat should be worth more than £150/tonne. Indeed, that was about the price on the day he spoke. Since then it’s dropped and then gone up again. I doubt if even he knows where it will go next. Volatility rules.

And not just with prices. DEFRA’s estimate for the 2011 wheat harvest was announced at the conference. Total UK production was put at 15.3m tonnes and that was a little higher than last year. For those of us in the room who had suffered a wet autumn last year leading to late drilling, then the worst of the spring drought and suffered the lowest yields for years, it was difficult to accept. And I wondered if the early drilling we’ve been doing this autumn will lead to better results next harvest. I hope so. And as input costs rocket, the bank manager says it can’t come soon enough.

David Richardson farms about 400ha (1,000 acres) of arable land near Norwich in Norfolk in partnership with his wife, Lorna. His son, Rob, is farm manager.

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