Prospects continue to look grim

w/e Thursday 30 October 1997

By FWi staff

BAD times for the cereal industry were confirmed this week by an Economic Intelligence Unit report released this week. The report shows grain prices globally have fallen by more than 20% during 1997 and are expected to stagnate throughout the coming year.

UK producers will hardly be rejoicing at the news that this years barley crop was the biggest since 1990. This years harvest is now officially confirmed at 7.85m tonnes, according to estimates from MAFF and the HGCA released yesterday (Wednesday, 29 October).

But ex-farm barley prices for fixed contracts have fallen by almost £30/ t since January. Feed barley for November is currently fetching an ex-farm price of only £73/ t.

Record carry-over stocks of over 1m tonnes from last season mean that total domestic supply for 1997 is over 9m tonnes – the largest for many years.

But domestic use is expected to drop by 0.3m tonnes and even if exports reach last years high levels, some 0.5m tonnes of barley are likely to be offered into intervention, reports the HGCA.

So far, any movement in the market is very quiet. Much of the malting crop was sold earlier in the season and feed barley is all that is left in any quantity.

Sterlings strength and the Cereal Management Committees unattractive restitution payments continue to hamper export opportunities, says Guy Tasker, managing director of grain merchants Saxon Agriculture, Kings Lynn, Norfolk.

The Pound hugged the DM2.90 level this week and growers will have to get used to a falling market, he adds.

Farmers with at least 100 tonnes of in-store barley might want to hedge their bets by securing a good futures contract. Prices for delivery next spring are currently hovering around £82/ t.

But the limited number of players means the futures market for barley lacks liquidity. Farmers would be unwise to enter into contracts for an entire crop, says Rom Balax, of Cargill Investor Services, London. Its much better to sell little and often as the season progresses, he says.

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