Sluggish exports dampen cereal prospects – FWi PREVIE

COLOR=”#66AAAA”>Sluggish exports dampen cereal prospects

31 December, 1997

By FW reporters

A SLUGGISH first half to this
seasons export campaign has limited the prospects of a cereal price
recovery in the first six months of 1998.

Trade estimates of the
amount shipped by the end of 1997 were well down on 1996 at 1.2 million
tonnes. Barley exports have been even slower, especially for Third
Country business, and Brussels has missed several opportunities by not
granting export licences.

The problem is exacerbated by a high
carry-over of old-crop stocks and an increase in the predicted level of
imports. Total cereal availability, according to the Home Grown Cereals
Authority, is only 500,000 t less than 1996, which was itself a
record year.

Quality has also limited price expectations. About 30%
of the UK wheat crop is below 72kg/hl specific weight. The net effect is
an increased supply of feed grain, with UK suppliers discounting prices
considerably to compete with higher quality French and Danish material.
These reductions have been passed back to growers.

But the
expectation now is that things will not get any worse – in grain-trade
speak, there is very little downside.

On the quality front, the
worst could be over. The further farmers dig back into their barns, they
reach earlier-cut samples of better quality. And some farmers have done
a good job grading and blending their grain to raise specific weights.

Predicting future movements is foolhardy, with the Pound ranging
from almost 3DM to 2.88DM during December alone. But better times could
be ahead. Economists predict a slowdown in the UK economy, no further
interest rises and a gradual weakening of Sterling during the course of

Whether Sterling falls enough to trigger green devaluations
remains to be seen. But it seems that further revaluations, cutting
intervention support and area aid, are unlikely. Sterling would have to
rise above 2.99DM and stay there for two months for this to happen.

The trade remains guardedly optimistic that official wheat estimates put
out in September may overstate the actual crop. And combined with the
fact millers have been reducing their estimates of their import
requirement, (from 1.3m tonnes to 1.1m tonnes), while animal feed usage
is up, the domestic market looks a bit tighter.

But that does not
escape the fact there is still about 2.2m tonnes to export and some of
that will have to go to Third Country destinations. Brussels is expected
to maintain its tight line on export subsidies and that grain will have
to fight hard on price to secure a home.

World prices are not
expected to stage much of a recovery in 1998. Contrary to earlier
expectation, the El Niño weather pattern has not disrupted
Australian and Argentinean crops too much, and these are now being
harvested. Plantings of winter wheat in both Europe and the USA are also
up, pointing to another big crop mid-1998.

At best, farmers can look
forward to a gradual improvement in prices for wheat. But intervention
looks like being the main outlet for barley – unless Brussels radically
rethinks its export policy.

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