Slump in £ helps UK grain exports

THOUGH the weather remains changeable, growing crops are developing well and sunshine is now required to fill the ears in the lead up to harvest.

The barley harvest in Spain has been gathering momentum and the French harvest is under way now as well. Early yield reports from south-west France are of high yielding crops, with lower specific weights than last year of 65kg/hl.

The condition of the French wheat crop continues to raise concerns with regard to quality and is putting pressure on feed wheat markets. Though we don’t know the quality of the UK wheat crop yet, it could help lift UK prices if there is a lot of poor quality grain in France due to the recent wet weather.

As a result, the French crop ‘good to excellent’ ratings have been further reduced by around 5% to 71% for wheat and 67% for winter barley.

Spain is expecting a crop 50% higher than last year, mostly due to bumper yields after good rainfall through the growing season.

EU soft wheat exports for the season to date now total 30.7m tonnes compared to 31m tonnes last year at this time. However, in the UK, wheat exports are nearly 30% ahead of the same point last year at 2.23m tonnes, a level not seen since 2011/12.

EU barley exports are also up by 1m tonnes to 8.7m tonnes, led by UK barley exports which are up by 35% to 1.76m tonnes. Forecasts are for exports to continue and reach 1.9m tonnes by the end of the season which will be a 19-year high. Significantly, increased requirements year-on-year have been seen in the traditional EU export markets of France, Spain, Portugal and the Netherlands on the back of the pound slipping in value against the euro. This makes UK grain more competitive and is resulting in unprecedented levels of exports at present.

London wheat futures for November closed 4.2% higher following the referendum result last week and closed at £120 per tonne due to the collapse in sterling, which hit a 30-year low of £1.32 to $1 – a drop of 9%, and the lowest level since 1985, but it later recovered to £1.37 before falling back again earlier this week.

Against the euro, £1 fell to €1.20 – the lowest level since late March, 2014 – which is a drop of 7%, before recovering to €1.27 and then going up and down.

Currency volatility has been a trend throughout most of this marketing season and one of the main factors driving markets in the absence of any global weather issues which also affects market prices.

It is likely this volatility will continue in the short-medium term and, therefore, the importance of keeping an eye on markets has never been so essential. July, 2016, feed wheat futures closed last week at £109, so there is still a £11 carry from old crop to new crop for grain still unsold in store. November, 2017, futures were up £1.05 to £128.25 per tonne, though the Australian Government said that world wheat prices are set to fall to 15-year lows in 2016/17 and expects that supply will once again outstrip demand.

Its wheat exports are also expected to rise in 2016/17, due to heavy production and significant carry-over stocks from the previous marketing year. Exports are up 4% year-on-year at 17.2m tonnes, the highest level in three years following 2016/17 wheat production of 25.4m tonnes, up 5% year-on-year.

Russia’s grain exports are also on the rise, at 33.3m tonnes, up 3.5m tonnes from this time last year, with wheat on its own up over 3m tonnes to 24.1m tonnes.

The global situation for maize, both this and next season is looking tighter than previously thought, partly driven by concerns over Brazil’s output this season.

Brazil is the third largest producer and second largest exporter of maize and output is expected to fall by 9% which equates to 7.5m tonnes. This has resulted in an upward move in maize prices and has pulled other cereals with it, such as wheat, with the price gap between the two grains narrowing.

On Brexit, we have to realise that, in the UK, where farming employs less than 480,000 people out of a total workforce of more than 31m, the sector ranks low as a priority for politicians, who are more likely to fund bigger vote winners such as health and education.

Also the bad news for farmers is that a weak pound will make imported inputs such as seed, fertiliser, sprays and machinery more expensive. This would, however, provide an opportunity for manufacturers with factories within the UK whose products would become more price competitive for UK farmers.

More than half of UK food and drink exports currently go to the EU and the UK market is also a big export market for food and drink exports from other member states.

UK agricultural imports as a percentage of total supply available for domestic use last year was 89% for fruit, 53% for pork, 48% for fresh vegetables, 34% for lamb, 31% for beef, 30% for potatoes and 28% for poultry meat.

In the meantime, Britain remains within the EU and will do so for the next 29 months and possibly for even longer – by then, perhaps things will have settled down, including the current volatile currency and market place as well.