DCSIMG

Good weather the biggest threat to high price levels for grain futures, says analyst

CEREAL growers looking optimistically at future prices for 2013 – which are climbing to new record levels – were this week warned the biggest danger to higher revenues was a “normal” weather year.

Speaking in Edinburgh this week, Jack Watts market analyst with the Home Grown Cereals Authority, pointed to a range of extreme weather events around the world which had knocked yield potential over the past three years.

These had brought about the more than doubling in the value of grain to the point where, he said, present-day prices were beginning to stifle demand.

“Normality is the danger you face,” warned Watts. “We have just had three seasons of volatility thanks to the weather and the price of grain has been driven up dramatically but we are now at a point where the price is beginning to ration demand.”

With weather patterns now being so important to supply and, therefore, price, he demurred from putting actual financial figures to his thoughts for the future but said he expected the current peaks in the futures trade to slip back a little in the spring as the grain crop in the Southern Hemisphere was harvested.

South America was now a major player in the world grain market and while crops in Argentina were suffering from too much rain, the Brazilian crop was potentially very good.

The 2012 UK wheat crop at just over 13 million tonnes and with the lowest yield per acre recorded for more than 20 years was more than 4 million tonnes behind the 2007 crop. At the same time home demand for wheat was higher for a number of reasons ranging from millers requiring a bigger tonnage of poor quality wheat than they would have done if quality had been normal.

Ethanol demand was also back in the equation with the Ensus plant in the north of England now back in production and consuming large quantities of wheat.

As a result, he believed the UK would be a net importer of wheat this year.

The UK barley crop was more finely balanced, he said, with demand strong with distilleries taking almost 2 million tonnes

In the oilseed market, South America was now the major producer contributing more than half the internationally traded tonnage of soya. Watts said that while there was currently a slight dip in oilseed prices, he expected them to grow again in the near future.

Demand for oilseeds was constantly increasing and there were no substitutes for soya in animal feed. In addition, China with wealth created by its manufacturing base was a ready and large-scale buyer of soya which put a firm base in the world market.

However, he pointed out that in some soya growing areas of the United States and South America, double cropping was an increasing practice as growers encouraged by high prices took up new husbandry techniques.

Looking at the European Union production of oilseeds, he said this was now well below levels achieved in the 1980s and there seemed little indication of a return to the production levels of more than two decades ago.

 

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