THE FARMING CASINO

It may seem a strange place to begin when discussing the grain market, but the value of Sterling Vs the Euro, despite the ongoing political manoeuvring and upset, appears reluctant to fall below the recent levels of EUR1.13-1.14.  In fact, sterling is attempting to rally at even the slightest bit of positive Brexit news.

Prior to the UK Brexit referendum in June 2016, sterling was trading at levels in excess of EUR1.30. In physical terms, this represents £25/T on the value of a tonne of feed wheat in the farm shed.

Currently the UK grain market has stalled; farmers, merchants and consumers are at a standoff, each believing their vision of the future to be true.  Farmers who are long holders of grain do not want to sell at current levels believing prices have only upwards to travel. Consumers will not pay a premium for any forward month, believing the market has only downward moves, to come.  Factor in also that due to price competitiveness, twice the amount of maize corn is now being used within UK animal feed production than a year ago.

New crop has a similar feel to it. Farmers believe values offered at £30 per tonne below current prices are poor.  Consumers see wheat plantings 4% higher and winter barley plantings 14% higher than last year, with every seed established and looking very good in the field, they therefore predict a large crop coming to harvest. The planting picture is repeated across large parts of the Northern Hemisphere crop.

Prices for wheat still in the shed at current levels are a rarity, in the past thirty years it has traded as low as £58 per tonne and as high as £220 per tonne but it has only been over £170 per tonne in three previous harvest years.  At some point ‘old’ wheat in the shed will become the same price as ‘new’ wheat at harvest.  At what level we shall know soon enough, but if the bottom of the sterling euro range is just over EUR1.10 with all the worst case scenarios and bad news potential factored in, then logic would suggest that post ’B’ day on March 29th   , industry, business and the markets will be finding ways to continue doing what they do best, which is trade.  If that is the case then by default confidence in the future will return.  The value of sterling will appreciate against the euro and baring a massive weather market some where around the world, the value of UK wheat will fall.

In this context £170 per tonne for wheat currently in store represents an exceptional return and one which is not to be dismissed lightly.   As for ‘New’ crop, there appears to be a big crop coming.  Harvest comes six months after Brexit, confidence and sterling may be on the up.  Wheat post-harvest currently tradeable at £150 per tonne represents the opportunity to put profit/margin into next years farming accounts. You can go to the farming casino and place your ‘bets’ on, up or down, OR, you can take your profit!


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