THE CHINA SYNDROME

Just when you thought it was safe to go outside, along comes storm Ciara and puts all the good work that was done on the land and in the potential wheat field the week before back in the ‘bin’. 

Add to our cropping issues, the continued Coronavirus problems and its impact on the global stock and commodity markets and therefore the physical trade and movement of money, goods and people around the world, and there are more than just dark rain clouds around.

Since the first reported death on January 11^th, the Shanghai stock exchange has fallen 11.2%. As the impact of the Virus began to spread around the World a knock-on ripple effect has been felt in stock and commodity markets elsewhere.

Paris rape seed futures have lost approximately 35 euros. London May wheat futures have fallen from £158.70 on the 21^st January to £152.00 at the time of writing and the London November values for new crop from £167.80 to £161.25.

Various sources are predicting the UK drilled wheat area for harvest 2020 at approximately 75% of the recent averages; an area which would potentially give us a wheat crop of around 11.0 million tonnes.  Strategie Grains this week put their UK crop forecast at 11.8 million tonnes.  To this figure needs to be added a potential large carry over from crop 2019 as farmer perception of imminent shortages is encouraging long holding of grain stocks.

Furthermore, declining world wheat and maize prices and a slightly stronger post-Brexit pound has encouraged huge imports of maize and quality wheat into the UK. To date, in addition to our own 16.3 million tonne wheat harvest, we have imported 552,000 tonnes of quality wheat and 1.25 million tonnes of maize whilst exporting 841,000 tonnes of wheat.  This gives us a total UK figure of 17.26 thus far, against an annual usage of approximately 14.8 million tonnes.

 A recent Reuters poll regarding the outlook for sterling, states that if a trade deal with the EU is reached, the pound should gain around 4% relative to the dollar by the end of the year. 

The Bank of England earlier this month held interest rates steady believing the UK economy to be growing and were therefore wary of adding inflationary pressure by reducing interest rates.

Whilst it may be too early to have a comprehensive outlook for global grain supply in 2020/21, we are expecting global grain markets to be dominated by Black Sea exports, which will undoubtedly keep European markets and therefore UK markets with a stronger pound under pressure.

The latest USDA report has World Wheat production at 763.95 million tonnes, an increase of 32.5 million tonnes on last year and World Maize Corn production at 1111.59 million tonnes, an increase of 56.6 million tonnes.

The numbers therefore point to no real shortage of supply.  Domestically it begins to look as if UK wheat for 2020/21 will be trading UK wheat crop, plus world wheat and maize crops, dependent upon relative currency values.

Even with less acres and therefore potential small crop, unless your money is on a fall in the value of sterling the current outlook does not look favourable.

‘The China Syndrome’ – 1979 disaster move staring Jane Fonda, Jack Lemmon, Michael Douglas.