CONTRARIAN ECONOMICS

The grain market is currently a mix of fundamentals, weather and politics.

The fundamental numbers suggest that UK harvest 2019 according to DEFRA was 16.283 million tonnes of wheat. 8.180 million tonnes of barley, 1.082 million tonnes of Oats, and 1.750 million tonnes of OSR was a bumper crop. The UK will need to export over 2 million tonnes of grain to avoid having a large surplus.

 Latest estimates would have us believe that we will have exported about 800,000 tonnes before the current Brexit deadline date of 31^st October.  Almost no export business is currently possible beyond that date, due to tariff concerns.  If ‘Normal’ exports are possible beyond this date, the UK has every chance of exporting its surplus over the remainder of this trading year. The alternative would leave UK exports to the EU attracting a 12 euro import tariff or competing in world markets for export business further afield. This would be possible, but probably at a discount to ‘Normal’ EU business, with the knock-on downward impact on farm prices.

The Southern hemisphere crop is still to be harvested.  Australian and Brazilian production numbers continue to be revised down on the back of weather woes and yet every time the World Wheat and Corn Production numbers are published, they remain relatively static at 765mt Wheat and 1104mt Corn.

Sterling v Euro and Sterling v Dollar rates fluctuate daily on the back of the latest Brexit news.  Any sign of a deal and Sterling appears to want to strengthen.  Any sign of further chaos and it weakens further.  Both of which impact on the daily spot price of UK cereals both domestically and abroad. 

The current domestic market is somewhat stagnated as both consumers and merchants try to unwind all the grain sold so far. Large volumes of traded grain have resulted in some September wheat being moved in October. Add to this that a lot of grain is always sold from farm for November movement, followed by a very short December trading month and it becomes easy to believe that the market will remain very flat for the remainder of this trading year, with very little upside and risk of further price falls.

But,

The Markets is the Market and despite all our Political woes, grain will continue to trade and move from farm to consumer, both home and abroad.

Extra demand may reappear from no-where (Vivergo), as if by magic, when all thought it was shut for good.

The fundamental numbers could be wrong. Sample results in this office would have bushel or kilo weights in both wheat and barley at approximately 5% below the norm.  There just may not be quite as much grain in the barn as first thought.

If any of the above hold true, then for those prepared to hold onto grain in store, opportunities and better prices may appear.

Contrarian Economics – A strategy that is characterised by purchasing and selling in contrast to the prevailing sentiment of the time.