HEDGE YOUR BETS

One month on from our article ‘Contrarian Economics’ written for October and the price of spot feed wheat on farm in Yorkshire has risen £10.00 per tonne.  The Politicians living in the ‘southeast bubble’ remain out of step with the rest of the country who are sick to the back teeth of Brexit, have voted for yet another extension all be it a ‘Flex tension’.  For the grain trade and cereal farmers this has allowed further exports of our potential surplus crop as sterling continues to flatline at 1.16 Euro and 1.28 US Dollar.  Throw into the mix a month of record wet weather, lack of crop planting, leading to worries for supply in harvest 2020 and hey presto £140 per tonne for spot wheat and £150 per tonne for harvest 2020.  Even more miraculous given the huge amount of grain that is normally sold forward for November movement pre harvest.

So, the market is currently supported by political uncertainty, relatively stable currency and rain!  Not a particularly stable foundation on which to build your long-term marketing strategy but one which has presented opportunities.

Despite all the gloom surrounding wet land and the lack of planting it will not rain forever.  All our current winter wheat varieties are capable of being sown throw to the end of January and some, Skyfall in particular through to March.  At which point according to AHDB yield figures it will produce a bigger yield than the comparable sown spring wheat crop.

At some point also post General election our Politicians will get Brexit done either on the back of a big Tory majority or some other cobbled together deal. Whatever the deal, a deal of any sort will probably bring a firmer sterling on the back of perceived economic and political stability.  It is worth noting that Pre the Brexit vote sterling was valued 1.35 euro.   A prospect that could remove £20 from the price of UK grain, either in the form of reduced prices in order to remain competitive or more likely due to the increase in imported grain as the international trading houses look to take advantage of UK Ag plc.

At some point also it will stop raining and will start to dry out.  Undoubtedly at the end of March there will be more winter wheat in the ground nationally than would rightfully seem possible today.

Caution must therefore be the watch word.  Whist today Politics, currency and rain are supporting the market, at some point soon the game may have taken a completely different turn.  It is far more prudent to hedge your bets than go all in, betting all on a notional price of wheat picked completely at random, just because that’s what you think it could be worth at some point in the future.  Far more prudent to keep selling a bit of old crop wheat into the rally.  If you are one of the lucky ones with next years crop safely in the ground keep one eye on the new crop market £150 per tonne is never a bad place to start.  Whether it be old or new crop do not let blind faith and blinkers prevent you from banking a bit of profit along the way.