Interest rate cut cools grain trade

By Robert Harris

EX-FARM grain prices have fallen by at least £1/t as Sterling climbed to a new high against the Euro on the back of last weeks interest rate rise.

In most regions, it is now impossible to find a spot feed wheat price of £70/t, according to figures from the Home-Grown Cereals Authority.

The Bank of Englands decision to raise the base rate by 0.25% to 5.75% was described as a pre-emptive step to cool the economy.

Sterling strengthened on foreign exchange markets as a result and £1 bought just over 1.62, the equivalent of DM3.17 on Wednesday (19 Jan).

This cut intervention values by almost £1 on the week to £75.40/t.

But the market this season has not moved down as much as sterling has moved up, said Gary Hutchings of traders Dalgety.

“It is fairly evident that there are quite a few people who believe the balance sheet is still tight and demand reasonably steady,” he said.

“Given that we are still competitively priced we feel the market will consolidate and any reversal in the Pounds fortunes will cause prices to recover.”

As far as new crop is concerned, help may yet come from an unexpected source, said Gerald Mason of the Home-Grown Cereals Authority.

The United States Department of Agriculture has revised end-of-season maize stocks down by over 7m tonnes.

Furthermore, it has cut its estimates of wheat stocks by 1.5m tonnes, mainly due to higher domestic usage.

The USDA report also suggests that US winter wheat plantings could fall to 17.4m ha (43m acres), the smallest area since 1972.

US wheat futures ended the week over $5/t higher, helping new crop world prices to edge closer to the EU intervention price.

“If we see another price rally, it could drag up the EU grain price complex with it,” said Mr Mason.

That could help new crop values rise above current dismal levels, with feed wheat priced at about £60/t ex-farm next harvest.

“Continued dry weather in the main wheat growing regions of the US will certainly be worth keeping an eye on over the next five to six weeks.”

Brussels took advantage of the lift in the world price to grant 315,000t of free-market wheat export licences last week.

The subsidy needed to make up the difference between the world price and the EU price fell to 37.47/t (£23.40/t), the lowest since November.

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