News

High prices cure high prices is an old trading adage; following the tightest world wheat stocks since the great grain robbery and the subsequent high prices farmers reacted by increasing the wheat acreage dramatically. A benign winter yielded a record breaking crop of 687 mln mt & stocks were replenished. In the EU yields were also at record levels and this sparked an export campaign which topped 23 mln mt. However even with solid domestic usage there was an increase in carry out stock by 6 mln mt. A good market carry into new crop encouraged farmers to hold onto stocks. The UK suffered what many in the industry felt was the worst harvest in living memory and although yields matched those of the bin busting 1984 crop moistures were a challenge to all. A brisk intra EU export campaign saw 3.5 mln mt shipped, however high new crop values saw an increase of 60% to 2.7mln mt of carryover stocks. The drilling of winter cereals was delayed by the late harvest & crops looked poor all winter, with large areas of the UK left uncultivated.

Season Present

Planting conditions in autumn 2008 were generally favourable and wheat areas around the globe were virtually unchanged on the previous year, but as the world went into financial meltdown there were concerns across the world about the farmers ability to finance fertilizer and pesticide bills, with horror stories about large areas of the Ukraine being uncultivated. However, after a benign winter Mother Nature had other ideas. Initial harvesting in Africa and India proved yields to be far better than expected and as harvesting continued through the Northern hemisphere the weight of wheat forced values lower with the final output within 9mln mt of 2008`s record output. The world corn supply and demand however remains very tight with a colossal 111 mln mt now being used in ethanol production in the US combined with a very protracted harvest knocking yields`. Particularly challenging for the EU wheat market was the reduced wheat import need from North Africa and exports are lagging last year`s record. The UK also enjoyed an unexpectedly good harvest. This season is a transitional one with some wheat users closing down and a new ethanol facility coming on line; however the UK is still an exporter of wheat. The good quality has allowed a good proportion of UKS & UKP to be exported while feed wheat has been challenging, and exports to the end of the year will be close to a million and it should not be too onerous to clear the surplus. The barley situation is dire and intervention sales are being made to support prices with little or no prospect of price improvement unless the pace of exports/intervention sales increases.

Season Future

Whatever the output is from the current winter wheat crop the world has large supplies of wheat, which will keep any weather events in check. There are concerns about the conditions that the US SRW crop has been planted in, but as we have seen this does not necessary translate into poor crops. One area that warrants close attention is India. The monsoon rains are 20% below the mean and are the worst since 1972. India`s 1.1 billion people consume around 80 mln mt of wheat per year and production needs to keep pace with the population growth to avoid imports. The corn market remains the best potential for a fundamental rally although the world crop close to 800 mln mt with usage of around 785 mln mt. As detailed above a large proportion of consumption is for ethanol production and if the US corn market is unable to buy sufficient area then there is potential for stronger prices which will reignite the debate about food and fuel. The EU looks on course to have a similar wheat crop to last year, although temperatures are dropping and there is limited snow cover. All things being equal North Africa should return as a buyer for EU supplies, in fact Morocco, amongst others has started to change its import regime. The UK looks set to remain an intra EU exporter of wheat even if both the anticipated ethanol projects are running at full capacity, with the bi- products feeding into compound rations displacing some raw materials. There are already plans for some grain ethanol facilities to be retro fitted for biobutanol in the UK but not until 2012/13 which will probably be more palatable for the public. All these fundamental issues can still be blown out of the water if banks and funds see grain as a way to hedge against inflation and they have very deep pockets, a dilemma that we will have to live with for some time.

We would like to wish all our readers a happy, prosperous and most importantly healthy new year.

Just a reminder that the next Openview will be on the 8th January. Have a very Merry Christmas.

Disclaimer

While the information contained herein is believed to be reliable, Openfield makes no representation as to its accuracy or completeness. Any statement non-factual in nature constitutes current opinion, which are subject to change.