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Newmarket: Fears raised over volatility of cereals and oilseed rape markets

06:01 24 May 2014

David Neale, Agrii

David Neale, Agrii

Archant

UK growers are highly vulnerable to cereal and oilseed rape markets which show signs of coming under increasing pressure, an expert has warned.

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Speaking to growers at a breakfast meeting at Newmarket earlier this month, David Neale, head of crop marketing at agricultural distributor Agrii, estimated that barely 15% of this year’s combinable crop has been sold to date, compared to the 30% he likes to see ahead of harvest for the best balance of market value and security. When buy-back contracts and other variety-specific marketing arrangements are taken into account this means the bulk of free-market crop remains unsold ahead of what has the potential to be a bumper harvest in the UK, he warned.

“New crop prices have fallen by £5/mt in the past week,” he said. “Demand is poor, we are not export-competitive and the use of wheat for ethanol production is likely to be much lower than predicted.”

Mr Neale pointed out that feed wheat has been trading at significantly less than £150/tonne for November movement.

“Thankfully, at the moment we have a good grain harvest in prospect for a change. And, after the past few seasons we certainly deserve one. However, the harvest prospects for much of the rest of the world are equally promising. All parts of Europe right through to the Ukraine and Russia are increasing production forecasts. So too is Australia, while old crop stocks hang over spot and harvest values.

“At the same time, pressures on both cash flow and storage are likely to make a higher level of harvest movement than usual necessary for many. Haulage and storage may be problematic for merchants with the lack of export demand leading to a short-term shortage of buyers as well as boats.”

Mr Neale strongly advised growers across the country to carefully assess their unit costs of production so they can make considered marketing decisions rapidly in response to what are set to remain highly volatile markets in the run-up to harvest.

“Of course, we may see speculatory movements in prices caused by political unrest or damaging weather patterns, but to rely on these in the face of what looks to be a large UK crop is a very risky strategy.

“So if you want to avoid the risk of leaving all your eggs in the post-harvest market basket and build greater security into your returns you need to be in a position to seek out and seize any opportunities as they arise with a good understanding of the margin they’re likely to deliver.”

On the production side, he said yields will be an even more important driver of acceptable profit than usual in such a market. So anything that can be done to maximise outputs will be more worthwhile than ever.

He also urged growers not forget bushel weights which will be crucial in securing the best available returns in an over-supplied market. All the more so, given the huge proportion of the current wheat crop in Group 3 and 4 varieties with their particular quality risks, and the ever-present danger of fusarium if conditions stay unsettled.

“We must avoid becoming the cheapest sellers in the world market,” he concluded. “So everyone needs take advantage of every reasonable marketing opportunity they have this season. And they musn’t let either output or quality fall short at the final hurdle. Or they could easily find themselves with a nice full barn but very little prospect of a decent bank balance.”

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