Andrew Arbuckle: Dry statistics can't mask concern over commodities trading

Although the statistics have not so far emerged, it seems pretty certain that for anyone under the age of 50, they will have just experienced the driest April of their life.

On the land, as soon as the winter-sodden ground dried, grain drilling proceeded without any rain-filled days and the same has so far been true of potato planting which is now working towards completion.

And even if the dry weather has slowed grass growth, the bigger plus in the sheep sector is this year's lamb crop has not experienced a cold sleety wet spell. So far so good.

But already we are seeing the consequences of this lengthy spell of dry weather. A press statement came in last week from the English NFU warning farmers not to over-sell their 2011 cereal and potato crops.

I thought it unusual not just because we in Scotland are just drawing breath after a non-stop spring sowing season and here was the first warning on crop yields but also because there must be a fair degree of substance before such a missive is issued.

I know that, travelling through the east of Scotland, there are sore bits in many of the heavy land fields where the autumn-sown crop gave up the ghost under the capped soil and there are gappy areas in some spring-sown crops where the drilling was too sharp or the farmer too impatient but overall the crops look good.

However, in England the Union points out that a similar dry spring last year laid the foundation for poor yields, especially on their lighter land. The problem for English grain growers is that the past four weeks with a lack of rain followed a dry March. Statistically East Anglia, which is one of the prime grain growing areas in the UK, had the second driest March since 1910. Add to this, early reports show parts of mainland Europe are already drying up and that Russian crops are later than normal. Almost half the winter wheat crops in the United States are reckoned to be "poor" or "very poor" so there will be no record breaking yields from that source.

All this makes it easy to see why there is twitchiness in the forward trading in the cereals market and why the "futures market" rose almost 10 per cent last week.

If the basic supply and demand equation was the sole determining factor in the cereal market, it might still be possible for farmers to work out where prices might pan out by the time the combines are ready to march on the ripe crop.

But nowadays the other big players in the "futures" markets are the financial traders. Not many of these people would even recognise a good crop of wheat or even a bad crop of barley but through their buying and selling they have a strong influence on just what price the farmer will receive for his productive labours.

Commodities trading is increasingly the playing field for financial whiz kids. It matters not a jot to them that as a result of their actions, the food bill for the poorer people in the world may increase. Neither does it matter if the primary producer - that is you Mr Farmer - makes or loses money on his labours.What is important for them is being able to read the trends before they occur and even sometimes if they have sufficient funds and influence trying to move the market for their own profit.

There is nothing illegal in these efforts but, as the Union points out, it could be an expensive problem for the farmer over estimates his crop yields.

The futures market is no 21st century phenomenon. My first recollection of futures marketing was back in the 1970s. A very dry 1975 saw potato prices rocket to 300 per tonne.

The problem for growers in spring 1976 was whether they would ever see the like again and so the potato futures for that year started cautiously at 100 per tonne and some sold at that price.

But as the summer wore on and the rain did not fall, the futures market rose, traders started calling on farmers for "margin calls" to ensure the contracts would be honoured. This threw cash flows out of the window and I know several farms that went on the market at that time after over-trading in the futures market. This makes the Union call on over-selling timely.

We are in a period of extreme volatility and big money can be made or lost if selling decisions are wrong. I was interested last week, to be told by the Agricultural Industries Confederation that there had been few problems with farmers in fulfilling 2010 contracts.

For some producers this act of keeping faith with their contracts and trading grain at half the price their neighbours were receiving must have been painful; doubly painful if the annoying neighbour claims he sold his whole crop at the peak in the market.