2020 CLOUDY VISION

So, here we are, New Year, New Government, Brexit Done! But not much in the ‘Farming World’ is any clearer than it was in 2019.  The relative firmness of the pre-Christmas wheat market has continued through into the new year as it becomes apparent that consumers (millers and feed compounders) have a significant amount of wheat to purchase for delivery January through to the End of June.  The ex-farm value of wheat has therefore remained firm throughout the first half of January and typically bids that are being refused on farm at levels just over £150/ tonne are being met with requests along the line of ‘when can I have £160!’  Or, ‘I think I am going to keep it to next year because there is hardly any wheat drilled this Autumn and it might be worth £200/t’.

The above may indeed happen, we may indeed be part of the way into a long ‘Bull’ run.  But, a few words of caution.  According to DEFRA and others, 2019 UK wheat harvest was a bumper.  Estimated to be 1 million tonnes more than the 5-year average at a colossal 16.3 million tonnes. 

The latest import/export figures for the year July-November tell us that thus far we have exported 741,000 tonnes of wheat, but that we have imported 435,000 tonnes of wheat (primarily milling wheat), plus we have imported 1,005,971 tonnes of maize.  Thus, adding a further 700,000 tonnes of feed grain/wheat equivalent to the domestic pot.

Looking further afield at the combined EU and Black Sea 2020/21 Supply and Demand equation, it would seem very similar to the last 3 years: if ‘normal’ weather patterns prevail, then there will be approximately 80 million tonnes of wheat to export.  Add to this the likely American wheat ending stocks year on year of 1 Billion Bushels along with maize corn ending stocks of close to 3 billion bushels, an over supplied global grains market will be chasing demand and that could mean lower prices.

The bottom line is that domestically the supply and demand equation for old crop wheat is in massive surplus, with likely large stock carry over into harvest 2021. Whilst new crop harvest 2021 is still to be quantified, dependant largely on how much finally gets sown.  The price of UK ex- farm wheat will undoubtedly at some point reflect both, whilst considering also the price at which wheat or maize can arrive into the UK.  This price will also depend of course on the relative value of Sterling to the Euro and Dollar according to how well our Conservative Government and economy are doing, plus of course the Brussels/Trump/Iran/China factors.

Alternatively, some significant weather issue may materially affect the supply & demand equation, be it February snow, spring drought on shallow rooted European crops or summer heatwaves around the world. It is also worth remembering that in the last decade, all the major Russian crop problems have occurred not in winter, but in May onwards.

So, in summary, nothing is clear, and nothing is straight forward.  It would be a very brave individual that gambles all on £200/ tonne.  Better to bank some profit along the way at what are after all historically very good prices.  As I said January 2020 – cloudy vision.

(Wheat 36.744 bushels/tonne.  Maize 39.368 bushels/tonne)