From Russia With Love

Monday this week saw two contrasting news items on Bloomberg.

First in the inbox ‘Wheat Climbs to a Three-Month High on Rising Ukrainian War Worries.’  ‘Wheat closed at its highest price since June as traders considered a worsening Russia-Ukraine war against lacklustre US grain demand. The intensifying conflict calls into question whether the two sides will agree to extend a Ukraine grain-export deal that is set to expire in about a month.’

Second in the inbox ‘Crop Giant Cargill Sees Developing Nations Cutting Grain Demand.’ ‘A combination of the strong US Dollar, high commodity prices and rising interest rates are creating a mix that’s driving a ‘’demand destruction’’ in crops, according to the head of Cargill Inc.’s World Trading Group. Developing countries in parts of North Africa, Middle East and southeast Asia are struggling with access to dollars that are needed for importing commodities. We are seeing a fair amount of demand destruction in parts of the world, said Alex Sanfeliu, world trading head for Cargill in Geneva.

Monday saw the London Liffe feed wheat market close approximately £11.00 per tonne higher than Fridays close. To be followed sharply by a £7.75 fall on Tuesday.

Domestically we have seen a reduction in demand for wheat into both the pig and poultry industries.

The high price of feed production, and reduced demand at the supermarket check-out, as the domestic economic and governmental woes bite chunks out of the pound in the consumer’s pocket. Add to this that high domestic prices have limited any opportunity to export our wheat surplus following the large UK harvest.

Our UK grain market would appear to be carrying a huge amount of risk. It may go up in price if further conflict escalations in Russia and Ukraine take place or World demand exceeds supply. Conversely, it may go down if demand destruction continues to destroy the markets we all need to trade our grain into, or the supply of grain through the Russian-Ukrainian conflict continues and improves further. Alternatively, World supply generally out strips demand.

Ultimately though, all the above is unknown and out of our hands’ crystal ball or no crystal ball.

What is known is that wheat in Yorkshire trading for October 22 – June 23 at current levels of £280 -£290 per tonne represents a huge amount of margin and profit over the costs incurred for the crop just recently harvested. What is more sales for harvest 2023 circa £265 -£270 per will leave margin and profit on the crop just now being sown, regardless of what you have paid for the ammonium nitrate. It would appear to me that with all the uncertainty surrounding all our futures the least risk course of action would be to bank this years profits with sales for the bulk of the crop in store alongside sales of ten to twenty percent sales of crop 2023 and for those who are very forward thinking a small percentage at £250 ex farm for autumn 2024.

But then I am only a grain merchant and individuals have all sorts of other factors affecting what they do and how they trade.  Not least of which appears to be targeting £300 per tonne, just because it briefly traded at that level for the crop of harvest 2021.

I will leave you with an extract from the film. A line from the character Karim Bey:

‘’Ah the old game. Give a wolf a taste and then leave him hungry. My friend, she’s got you dangling.’’

He was of course referring to a woman not the £300 per tonne!