Grain growers warned of volatility ahead

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Grain growers who are just emerging from one of the most difficult seasons in living memory were yesterday told that volatility would continue to be the main theme in coming years.

Jack Watts, a market analyst with the Home Grown Cereals Authority, said the fluctuations in price experienced this season and in the previous five years would continue for the foreseeable future.

But he added that there would not be a replay of the 2007 price spike, even although any severe weather problems affecting future production would make the market even more sensitive to price change.

This year, the weather in various parts of the world from drought in the United States grain growing areas to flooding and lack of sun in northern Europe had wiped millions of tonnes of potential production of the balance sheet.

Watts put the UK loss at 
4 million tonnes with the wheat crop at a 25-year low in production and the country ending up as a net importer of wheat this year. World grain prices had risen to new levels as a result, but Watts, who was speaking in London, said there was now evidence that demand was “being rationed” by the high prices.

This rationing effect could be seen both in animal feed markets and in the more recent market of bio-enthanol production in the UK and elsewhere.

This throttling back in demand would help save stocks, but these would still be at very low levels before the 2013 cereal crop was taken. Even the southern hemisphere grain producing countries such as Australia and Argentina would not fill any major gap, especially as the former country was predicting reduced production from its record-breaking crop last year.

However, Watts picked out Argentina as a coming force in the barley market for both malting and feed. “They have come from nowhere to being the largest exporter of barley in the world,” he said.

“They will play an important role in a tight market for barley with Russia and Canada both with lowered production.”

European barley production had increased slightly and quality was good. Demand from maltsters remains good in the UK, but there are some quality issues, he said.

When questioned on the possibility of a collapse in the high cereal prices, he did not think this was possible as demand for all types of grain continued to grow. Even with a benign growing season and bumper crops in 2013, the value of the grain produced would still be strong.