Grain markets set to return to normality, say experts. - farmers weekly

A RETURN TO NORMALITY – WHATEVER THAT MAY MEAN – IS BEING PREDICTED BY MOST EXPERTS FOR THE WORLDWIDE GRAIN MARKETS THIS COMING YEAR, AFTER TWO YEARS OF VOLATILITY. In practice, normality

means a more balanced supply and demand situation, explains Nidera’s wheat trader, David Eudall, who believes that wheat stocks will be more comfortable by harvest 2014 if the current lack

of weather problems continues. “Unlike last year, when the US drought took its toll, the recent weather has generally been kind in the major wheat and corn growing regions,” he reports.

“There haven’t been any problems, which is partly why the markets have been very subdued in recent weeks.” That weather effect was also evident in the UK following a very wet 2012, with a

lower wheat area keeping production at 12-12.5m tonnes. The HGCA’s Early Bird Planting Survey results show a 22% increase in the wheat area planted this autumn, up to almost 2m hectares,

after a mild spell allowed growers to complete their intended drilling, he reports. “The UK increase was always going to look very big,” comments Mr Eudall. “We were starting from a very low

base, after the problems encountered in the second half of 2012. But it’s not just us – the whole of Europe has seen a 4% rise in plantings, thanks to the better weather.” Russia and

Eastern Europe experienced a slower start, he acknowledges, but by mid-November some 88% of the planned wheat crop was in the ground. “If they get a couple of weeks before the winter

temperatures really hit and frosts develop, crops should be good.” Despite a smaller wheat crop from the 2013 harvest, UK growers have seen prices erode through the season, as global

harvests increased. “It just shows that we are in a global market. Domestically, we’ve had two poor years in a row, with a poor quality crop followed by a small crop, so it would be good to

return to a 15m tonne harvest in 2014.” Looking at other important wheat growing regions, Mr Eudall points out that grain markets in the lead up to Christmas and the new year will be heavily

influenced by South American planting conditions, in addition to how well Russian crops move into the winter and cope with lower temperatures. “It has been very dry in Argentina for most of

the year, and while recent rain has helped improve conditions for planting, there’s a need for more rain to replenish soil moisture reserves,” he says. “If they go into an extremely hot,

dry spell over the new year, it will put pressure on developing crops.” Following this, the early spring period will be important for the planting of spring crops in the USA, he continues.

“If conditions are favourable, the areas of maize and soya beans could increase, as there is land which could come back into production.” For new crop prices to rally, a significant weather

event in one of the three main grain producing regions – the USA, South America and Russia/Ukraine – is required in the next nine months, he advises. “It’s a weather market, as the potential

for crops is huge.” For harvest 2014, Mr Eudall points out that if the weather remains favourable, many UK growers will have a larger wheat crop to sell than in the past two years. That

makes it important to stay in touch with the market, he stresses, even though prices are trading in a small range at the moment. “Don’t be complacent. It doesn’t take much for the grain

price to erode by up to £10/t if there isn’t much news or information. It would be wrong to switch off.” Having the right market intelligence is necessary, he adds. “Talk to your traders.

There are lots of small drivers and it’s all about having confidence in your decisions.” Demand from other parts of the world – particularly Egypt and China – is still there, which may add

support to the markets in the short term. “Egypt remains the largest importer of wheat but China is now taking greater precedence after a poor growing season for their domestic crops.” KEEP

CLOSE TIES WITH KEY MERCHANTS There are many routes to market ranging from growers direct selling grain themselves to millers and food manufacturers to joining a co-op pool and letting

traders do the selling. But for G’s Fresh arable manager Edward Burke, staying in overall control of the farm’s grain marketing and using a whole range of options, works well. His preference

is to maintain close relationships with key grain merchants, so that he has the flexibility and convenience that comes with being able to react to grain price movements as the season

progresses, through direct and spot marketing. But he also sells a proportion of the crop forward each year and the business has purchased storage in two local farmer owned co-operatives,

giving him access to other markets and sophisticated drying facilities, should they be required. “We’ve had a long standing relationship with Nidera and keeping our options open with them

has worked well,” he says. “With both feed and milling wheat being grown here, we aim to sell around one quarter of the milling tonnage forward. The remainder goes into store, so that we can

take advantage of rising prices in the spring.” Based around Ely in Cambridgeshire on black, fenland soil, the farm has 700ha of winter wheat, grown in rotation with 140ha of sugar beet and

804ha of maize, which supplies an anaerobic digestion plant in the vegetable business. The feed wheat, all of which is Grafton this year, goes to breakfast cereal manufacturer Weetabix,

through two merchants. The Weetabix contract stipulates that the wheat has to be grown within a 50 mile radius of the company’s Burton Latimer factory, must be grown in a sustainable regime

with either HLS or ELS in place and has to be supplied direct from farm, not via a central store. “It’s been a good contract for us,” says Mr Burke. “They are keen to secure year-round

supplies of wheat and we are being paid more for our feed wheat than we are for our Group 2 milling variety, Cordiale. “It wouldn’t be an option for us if we’d committed all our grain to a

central store. Being tied into one arrangement isn’t always the best approach.” The milling wheat – which is made up of Solstice, Cordiale and Gallant this year – is marketed differently.

About one quarter of it is sold forward, with the rest being put into store and then marketed when Mr Burke believes the price is right. “I keep a watching brief the whole time,” he says.

“At this time of year, it tends to be very quiet. But from around March onwards, it all gets a bit more interesting and the price tends to go up.” Holding on to a considerable tonnage means

that he has to develop a good working relationship with grain merchants. Nidera does the majority of this business and between them they keep all lines of communication open to be sure of

getting a good deal. “Things have become much easier, thanks to the development of websites, apps and smartphones. It means that I don’t have to phone around for a spot price.” Texts and

direct communications received from grain merchants in the morning are an easy way of keeping up-to-date, he remarks. “It’s very straightforward to then go on-line and deal whenever I want

to. It’s convenient too.” Mr Burke recalls that there can be as much as £5/t variation in spot prices received from different merchants on the same day. However, he does also make use of

storage contracts in both Camgrain and Fengrain – giving him other advantages in some years. “We don’t have a drier on this farm,” he points out. “So their drying and grain conditioning

facilities can be helpful in a wet year.” He also tends to start harvest early, meaning that the first grain comes off at a higher moisture content than normal. “Again, it’s good to know

that we have the means to deal with it.” He acknowledges that the co-operative stores do have access to niche markets and often strike a good deal through their marketing expertise. “But the

downside is that you have to wait until June for payment and you do lose some of the business flexibility.” UK – A STRONG BARLEY EXPORTER The very large barley crop produced in the UK in

2013 needs to be exported, although some is being used in animal feed to replace the gap left by the smaller wheat crop, says Mr Eudall. Exports amounted to 255,000t in the first three

months of the season as harvest pressure arrived, he notes. “As the season has progressed, the UK has remained a strong barley exporter, but there is more competition from other regions

now.” An additional 1.5m tonnes was produced, making it an unusual year for barley, he reports. “Again, we’re anticipating a return to more normal levels in 2014. “The good autumn conditions

mean that we’ll have more winter barley in the ground and there’s likely to be a reduction in the spring barley area,” he ends. “Any premium will be determined by the late spring or early

summer, when we’ll know how the 
European crop has fared.” MORE ON THIS ISSUE