BALANCE

Over the course of the last month several changes and strange market reactions have taken place within the grain trade.

Politics, Brexit, High prices on farm, Statistics and Sentiment have all had their part to play.

Starting in Russia, the proposed introduction of an increase export tariff on Russia grain exports designed in part to keep a lid on domestic Russian food inflation and keep Russian domestic grain stock up and Russian domestic prices down, initially had the opposite effect on UK and World wheat prices to that which was anticipated.  It was generally predicted that an export tariff would tighten world supply.  Contrary to predictions, the tariff brought a rush of new Russian business to the market as traders strove to maximise sales before the tariff came into force, even as in doing so, they pushed prices down.

UK Feed barley which pre-Brexit had been struggling on farm in the mid £140’s, post-Brexit found new momentum as fresh export orders were taken and demand improved.  This was further backed up by several domestic compounders following the old adage that the cure for high prices is high prices.  Reacting to this by rolling some of their January wheat purchases into more forward months and replacing it in their rations with spot purchases of much cheaper feed barley.  Further helping to push on farm wheat prices down. This year barley has been trading  at discounted levels approaching £40 -£50 per tonne to wheat on farm, when traditionally a £15 per tonne discount would see it take the place of wheat in many feed rations.

Earlier this week all eyes turned to the February USDA, World Agricultural Supply and Demand Estimates.  The large International Trading Houses and Fund investors were predicting a substantial cut to US corn ending stocks, a sharp decrease in Chinese corn ending stocks and an overall decrease in Global corn ending stocks.  In reality the Report published a much smaller than expected reduction in the US corn stock, an increase in the Chinese ending stocks, an increase in Global corn ending stocks and a small increase in Global wheat supply.  The net result of all these was a market moving prices down when the opposite was predicted.

The CBOT (Chicago Board of Trade) wheat futures Managed Money Outright Long Positions (Fund Money betting the Market will go higher) is substantially higher than ever before in January and some 16% higher than last year’s record.  History indicates that it is difficult to sustain so many longs for an extended period without the market constantly being fed by new bullish information, and the downward correction is often sharp.

Here in the UK our latest import/export estimated numbers suggest we have exported approx. 950K tonnes of barley, whilst importing 1.65 million tonnes of maize corn and 1.53 million tonnes of wheat ranging in quality from feed to best milling though to the end of January.  Add these figures to the range of estimates of the UK 2020 harvest and suddenly the word shortage may no longer seem to apply.

Throughout the early part of this trading season, sentiment, both here in the UK and around the World has driven grain prices ever higher.  Sentiment however is a fickle mistress. Sentiment can change in an instant and as with a set of kitchen scales, at the point of balance it takes very little to change the momentum.