Mexican Standoff

By definition (Wikipedia) ‘A Mexican standoff is a confrontation in which no strategy exists that allows any party to achieve victory.  As a result, all participants need to maintain the strategic tension, which remains unresolved until some outside event makes it possible to resolve it.’

The UK grain trade is currently becalmed, Easter is upon us, many in the merchant trade have left their desks for family holidays.  Bored of the never-ending conversations surrounding Brexit and the lack of market direction but secure in the knowledge that the weeks continue to roll by and the price of wheat ex farm in Yorkshire remains in limbo.

Currently those farms with 2018 crop grain still in the barn remain convinced that they own a scarce commodity.  New crop wheat harvest will commence in mid-August approximately 4 months away and based on this and the fact that wheat was a bigger price 2 months since, they believe the old crop price must go up.

Consumers, with mills to run through to harvest remain convinced that there is more grain available out on farms or in merchant stores than local reports would have them believe.  They reason that the on-going maize imports (2 million tonnes thus far) and the imported wheat figure (approx 1.50 million tonnes thus far), have swayed the supply and demand balance sheet in their favour and as such refuse to price wheat for anything other than ‘spot’ delivery.

So, we have our ‘Standoff’.  Both parties convinced that they hold the advantage but neither able to force the market to move one way or the other.

We look therefore to outside events.  The calendar rolls forward relentlessly and on the day the combines begin to roll there will either be a surplus of wheat on farm, and The Mill wins, or we will have been chasing every last available tonne to keep the mill rolling and Farmers win.

Or at some point between now and harvest outside events will resolve the argument.  We may at some point have a Brexit result which moves the value of sterling significantly up or down with the consequent knock on, but opposite effect on the price of UK wheat.  A firmer sterling and we will likely import even more wheat and maize, a weaker sterling and we may be able to add to the ever- increasing EU wheat exports figure.

The merchant sat between the two opposing camps can take one step back and look at the bigger picture.  The average May 2019 Liffe price from the first day it traded on the 24th May 2017 through to now is £161.81.  Yorkshire feed wheat can currently be sold ex farm for May at £165.  We have said it before in this paper, these are historically huge prices, they have a very healthy dollop of profit within them.  With every day that passes, with every tonne of foreign maize or wheat entering the UK and with every day of Brexit stalemate, the odds are shortening in favour of the Mill.  Unless of course some other unforeseen outside event comes in to play.

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