Cassian Battistini, manager of the Grain Trading division, provides a market update and pricing strategies for 2019 crop.
Since the Grain Team’s last blog in May, our prediction that the wheat market would be volatile this year has since proved to be correct, albeit it on a scale that few had anticipated! With the exception of the Americas, unusually hot and dry conditions in the majority of the major wheat producing and exporting countries of the world have prompted market analysts to slash their global wheat production forecasts, which in turn has prompted a sharp rally in prices. Having improved steadily during the Spring months, UK wheat prices rocketed by more than £25/t in July as downward revisions to Russian, Ukrainian and Australian crop yields were joined by sharp reductions in Northern European countries as well. With Brexit discussions still ongoing keeping downward pressure on the pound, London futures values reached a 5-year high towards the end of July, leaving market participants wondering whether prices had now reached their peak or could go higher still.
Meanwhile, the outlook for UK wheat demand is set to remain strong with both bioethanol plants currently operating and poor grass conditions likely to result in higher grain consumption by the animal feed sector. With the latest 2018 UK wheat crop estimates around 13.5 – 13.8m tonnes compared with nearer 14.6m last year, the UK is likely to be a significant net importer of wheat during the 2018/2019 season. This means that UK prices will need to remain above European values to attract imports, so the downside risks to current price levels therefore look limited in the short term.
However, it is important that growers do not become complacent in the current market as risk management remains extremely important during periods of such price volatility. The current rally brings the opportunity of achieving the highest prices in half a decade, but these conditions are likely to be relatively short-lived – the last three price spikes above current levels had all sharply reversed by the end of the same season, as global supply/demand dynamics adjusted to the higher prices and focus shifted on to the following harvest. Selling into a rising market is therefore a good way to limit your downside risk, especially when looking at the following year’s harvest. Indeed, given the continued uncertainty surrounding the UK’s trading environment during the post-Brexit era, 2019 crop prices now look very attractive and offer an excellent opportunity to lock in prices at profitable levels.
Given the unusually high degree of risk facing the 2019 wheat crop market, a sensible, relatively low-risk management option to approach the market is via a pool. The benefits of marketing pools include deciding on when you would like your material to be moved, knowing exactly when you are going to get paid and the peace of mind of having a dedicated marketing expert to ensure that your returns are maximised across a series of sales transactions over a period of time. The ability to combine volumes with other growers also helps to reduce price volatility and allows the marketing agent to make forward sales using the futures market in advance of the physical marketing period order to capture additional value on the grower’s behalf.
MSP’s well-established wheat marketing pool has an excellent track record with a significant number of repeat growers that have remained loyal to the pool for a number of years. Thanks to our strong relationship with the flour mills, MSP is also able to maximise the value of biscuit and milling wheat grades by ensuring that such parcels are identified at harvest and marketed accordingly. The minimum commitment is a single load for feed wheat and 2 loads for biscuit or milling wheat. There is still time to join our 2019 harvest pool, which has the below closure dates:
Autumn (Q4) Pool: October – December 2019. Closure date: End September 2018
Spring (Q1) Pool: January – March 2020. Closure date: End December 2018
Summer (Q2) Pool: April – June 2020. Closure date: End March 2019
Please contact your farm trader on 01289 333342 to review our historic price track record and register your commitment, or to discuss the marketing options most suitable to your business.