Weak pound boosts export opportunities

We continue with this period of volatility as the pound has fallen once again against a number of currencies including the euro and dollar.

As at 8th July £1.00 equated to 1.17 euros and 1.30 dollars. This is the weakest sterling has been against the euro since October 2013 and the weakest against the dollar since 1985.

This supported UK wheat prices and the devaluation of the pound promotes UK origin wheat as an attractive option to foreign buyers and when coupled with a firmer Paris market, the price increase in November futures came as no shock to the market. Sterling is still doing its best to support UK values whilst US and French futures markets hover around contract lows.

The November 2016 Liffe feed wheat futures were up £3.75 on the week to £118.50 and for November 2017 were up £4.45 to £127.80.

The average UK feed wheat ex farm price for the whole of 2015/16 season, which ended last week, was £104.90 and this is the lowest average price since 2009/10 and reflects the ample global supplies of wheat this season which has been depressing prices.

Average UK feed wheat ex farm prices have also been flat throughout the 2015/16 season. The range in prices, from the highest price in July 2015 to the lowest price in March 2016, was around £18.00per tonne. In comparison, the range for 2014/15 was significantly greater at £29.00 per tonne.

Due to the poor summer weather in France, their 2016 soft wheat production has been cut by 2 million tonnes or 5% to 36.5 million tonnes. Yields are expected to be down from 7.38 t/ha to 6.98 t/ha as a result. France accounts for around 25% of total EU wheat production and accounts for around a third of all wheat exported from the EU.

With this in mind, a reduction in production from the EU’s number one producer/exporter, along with the boost to UK competitiveness from weaker sterling against the euro, could give the UK increased export opportunity in 2016/17, but would be subject to the size and quality of the UK crop.

The French winter barley harvest is now approximately 16% complete, which is behind compared to progress seen at this time last year. Yields remain modest with low specific weight at 57-59kgs per ha which is below the minimum required of 62kg/hl and high screenings are evident as well.

In France, humid conditions could increase the risk of disease and lodging and flooding has also been reported in Belgium and the Netherlands along with some limited damage in Germany who are the EU’s second ranked wheat producer. Quality concerns. in Europe following the recent wet weather will continue to support milling and malting markets.

Russian wheat yields so far have been above last year at 1.85 t/acre with around 7% of expected Russian wheat production harvested and would see a record wheat crop of 66 million tonnes, up from 61 million tonnes in 2015. Early indications for harvest to date show yields 19% higher than at the same point last year. Russia are targeting cereal production at 120 million tonnes by 2020 compared to 105 million tonnes in 2015.

The Ukranian barley harvest is 23% complete with average yields put at 3.43 t/ha compared to 3.11 t/ha last year to date. Their wheat harvest is 4% complete with yields up from 3.20 t/ha last year to 3.72 t/ha this year. Oilseed rape yields are also up from 1.80 t/ha to 2.30 t/ha with 10% of their oilseed rape cut to date.

The USA winter wheat harvest is estimated at 58% complete with yields of up to 2.7 t/acre in parts of Kansas, resulting in Chicago wheat futures hitting a nine year low of £118.00 per tonne earlier this week. US weather across the mid-west remains cooler and wetter than previously forecast resulting in the maize crop being rated at 75% good to excellent. US maize crops are at a stage of development when weather conditions are particularly crucial to yield potential, and some markets continue to react to changing forecasts. Global maize markets are less comfortably supplied than wheat and so have been providing support to overall grain prices so far this year. As the US crop is a key part of global maize supply, what happens to the US crop will have a bearing on feed grain prices in the remainder of 2016.

The EU commission has cut its EU oilseed rape production forecast for harvest 2016 down 5% at 20.8 million tonnes and if realised will be the smallest rapeseed crop for 4 years. This follows the poor weather which has already had a detrimental effect on other crops earlier this year.