Cereal prices look set to keep on growing

Cereal growers can look forward to the next five to ten years with a fair degree of optimism even though there will be fluctuations in the market price for grain.

That was the opinion of Julian Bell, senior business consultant with the Scottish Agricultural College, who described to growers at a meeting in Perth yesterday how the world supply and demand equation looked in the foreseeable future, with production unlikely to cope with increased consumption.

On a worldwide basis, grain stocks are now at a low last experienced four years ago. At the same time demand is well ahead of production through increased sales to ethanol plants, animal feed and human consumption.

"Even if the world produces a record grain crop this year, it will not balance the equation," he said, adding that even though prices are high at present, there might still be more upward movement on forward deals with buyers worried about potential shortages in the market.

The important points for growers faced with the difficult decision of when to sell their grain on this bull market were, he said, to know their costs and spread their sales using the three-year selling period that is available on the market for any one crop year.

While the main grain interest in the UK is on the wheat market, Bell pointed out that world stocks of maize were even lower than for other grains.

Over the past 30 years, world grain production has increased 60 per cent, on 6 per cent less land. He ruled out any massive increase in plantings with a number of hurdles, such as a shortage of water and fertilisers, preventing this from happening.

There is now also a conflict in planting priorities brought about by a big surge in their values over recent times.

Within the UK, the grain market has undergone massive change with the arrival of several major ethanol production factories. The first of these, Ensus, is already working its way through its annual consumption of more than a million tonnes of wheat.

Another million-tonne unit is almost ready to wing into production. Both of these are located in the north-east of England between the main wheat growing area in east England and Scotland.

This will disrupt the traditional Scottish wheat premium that has existed in a country not self-sufficient in grain. But the fragility of that premium has already been seen this past season with its evaporation after a harvest where Scotland gained self-sufficiency in wheat.

Malting barley growers were also encouraged by Bell's assessment of their market, which has been in the doldrums for the past three years. Through a reduction in sowings and a buoyant international market for whisky, he predicted better times ahead for this sector.