SELLING FORWARD BACKWARD IN 97
Ask any grain trader to forecast market prospects and hell say it all depends on the value of sterling. Growers still sitting on last years wheat and barley know that to their cost already. Susie Horne takes a look at prospects for 1997 crop
NEW crop prices in the mid £80s are less than inviting. The result is that so far just half of what would be considered a normal tonnage has been sold forward ex-farm for the coming harvest.
That could lead to logistical problems if there is a lot of harvest selling and pressure to move grain off-farm during that time, predict some traders. Others think many arable growers see land work and drilling the following crop as their priority, and so will leave "early" selling until October/November.
Other than having sold a much lower tonnage of new crop than usual, there is no clear indication of any change in growers approach to grain marketing. The use of guaranteed minimum price contracts is growing slowly, and some producers have chosen to turn over their crop to marketing schemes run by merchants for the first time this season.
Cost control advised
While currency speculation is not the inclination of the average grower, there is scope to improve the return from cereals and oilseeds through further cost controls, advise business consultants.
Input prices have been creeping up despite the strength of sterling, and interest rates are higher than a year ago. Intervention prices, on the other hand, are falling and so are area payments.
The grain trade is forecasting a 1997 crop around the same size as that for 1996. This is based on wheat and barley acreages up by between 7% and 8%, but on yields turning out closer to average results than the bumper performance of 1996.
The larger arable area could mean higher arable area aid claims for 1997 because of lower forage and grass acreages due to BSE. "This may trigger a price penalty for other crops in England for the first time, with the threat of uncompensated set-aside in 1998," warns business consultant Andersons in its 1997 outlook.
With set-aside down to 5%, this will reduce the pressure on profits, but commodity price and input cost squeezes will make it hard to maintain financial performance.
As well as having to pay more for some physical inputs, higher bank rates will take more off the bottom line.
The EU Commission has promised to put out Green Papers on reform of the arable regime (among others) this year, closely followed by proposals. However, the greatest pressure is for reform of the dairy regime, so arable proposals may not appear until 1998.
The background to the reforms is greater pressure for freer markets. The freer the market becomes, the more volatile prices may also become, especially if world grain stocks continue at relatively low levels.
While stocks are tight, increased plantings in Europe and the US should see a slight rebuilding of stocks from the 1997 harvest. At home, we will possibly see 0.5m tonnes of wheat carried over into next season, which is already overhanging the market to some extent.
The UK has competed very successfully with France this year because it has had good quality cereals to offer. "Good quality cereal crops are essential as growers may need to get used to values in the £80s instead of the £100s," warns Dalgety Agricultures commercial manager Trevor Harriman.
Among winter wheat plantings a smaller proportion is down to class 1 varieties, he says. "This should ensure that milling premiums remain attractive for the right quality material."
On the other hand, the increased barley area contains a larger proportion of potential malting varieties which may help export prospects.
Maltsters bought large tonnages of 1996 barley at much higher prices than those now on offer, and are likely to be very wary of buy-back and fixed price contracts this time round, predict traders. Most of Europe is in the same position, so very little new crop business has been done.
UK barley price prospects now depend to some extent on spring drilling conditions for our European competitor growers in Denmark, France and Germany, says Jim Houldey, grain trading manager at Allied Grain (South). "If they have a wet, late spring they may not be able to get crops in or produce the quality they want," he says.
Oilseed rape and linseed are likely to trade at roughly equal values for harvest 1997. The oilseed market is dictated largely by world oilseed production, demand and currency.
Rape prices similar
This year the market size is unchanged, with harvest prices for rape at around £160/t ex-farm, which is similar to last years forward value. In the absence of crop failures and weather damage in other oilseed growing countries, this market may remain quiet until harvest.
The overall oilseed rape area will be little changed, according to trade estimates. The current season should see the UK become near self-sufficient in oilseeds – a turnaround from its more usual role as a large net importer. While UK rapeseed consumption is steady at between 1.45 and 1.55 m tonnes, growing demand from rest of Europe, where supplies are tight, means better export prospects.n
• Low prices mean half theusual tonnage sold forward.
• Minimum price contracts growing.
• Area rises and average yields mean similar sized harvest to 1996.
• 0.5m tonne wheat overhang.
• Proposals for reform to arable aid unlikely before 1998.
• Quality helps sale and export.
• Oilseeds relatively firm.