8
CEREALS: CROP MARKETING
INFORMATION IS KEY TO SUCCESSFUL CROP MARKETING This year’s exceptionally wet winter and spring in the UK might lead some to think that domestic production will be lower and higher prices will result. But with agriculture now a global industry, that may not be the case, says Darrell Yarwood, Trading & Logistics Manager for our crop marketing partner ADM Direct.
When looking at the supply and demand balance we must consider potential threats to production. World wheat stocks are good, and with supply and demand finely balanced the factor most likely to lift prices is a threat to production. Currently, these include drought in North America where most of the Plains are officially in this category. Four of the five key Hard Red Wheat (HRW) States reduced their crop ratings from December to January and in February Kansas crop ratings were the lowest for 12 years. What happens in the US doesn’t necessarily impact on world prices because their large stocks act as a buffer. However, the US markets, including Chicago, often trade in insular fashion, but if Chicago prices rise on the back of continued drought conditions this could provide a selling opportunity.
WORLD WHEAT PRODUCTION (MMT, Main Producers)
150
100 150
50
“It is vital to have a grasp of the fundamentals that drive today’s agricultural commodity markets, from crop plantings, growing conditions and weather, to currencies and politics. ADM’s in-depth knowledge and leading analytical, technical, economic and human resources go way beyond anything that even the largest farming businesses could contemplate, and are a major reason why Fram Farmers’ Crop Marketing Department is so effective. At the start of 2017 we advised clients that world demand was predicted to exceed supply, world stocks were not quite what they seemed, the UK balance sheet was likely to be tight, and quality and currency would play a major role in determining prices. All but one of those predictions proved correct. Going into harvest prices increased when it appeared – briefly that world demand would exceed supply, providing an excellent selling opportunity. However, when instead of the 70 Million Metric Tonnes (MMT) wheat crop that Russia had been expected to produce, it was 85MMT, prices fell back from their July peak and continued down until the end of 2017. So, what lies ahead? The total world wheat supply has increased every year for the last five years, from 660MMT in 2012/13 to around 754MMT for 2017/2018. Currently, it is the greatest on record, while total demand continues on an upward trend and is likely to be slightly higher in 2017/18 than 2016/17. World wheat ending stocks have increased every year since 2012/13 and are predicted to rise further. Increased stocks generally lead to more market stability and lower prices.”
Canada
100
0 50
0
150
100
EU
USA
150
100
50
50
0
0
150
100
50
2017/18 Prediction
0
2017/18 Actual 2018/19 Prediction
Argentina
RUSSIA IS KEY “Russia remains the focus due to its large exportable wheat surplus which will keep global prices in check, so growers should monitor the pace of their exports for the rest of this season. From 2016/17 to 2017/18, the country increased wheat production by over 15%, and recorded the highest percentage increase in carryout, whereas in the US it fell by around 25% and in Australia by almost 30%. Looking ahead to 2018/19, world demand for wheat is likely to increase by around 10MT to 745MT, largely due to increases across the human, industrial and feed sectors in Africa and Asia. World supply is predicted at 740MT, with lower production in Russia and India, but higher levels in the USA, Canada and Australia, while exporting countries are expected to reduce stocks. When looking at the supply and demand balance we must consider potential threats to production. World wheat stocks are good, and with supply and demand finely balanced the factor most likely to lift prices is a threat to production. Currently, these include drought in North America where most of the Plains are officially in this category. Four of the five key Hard Red Wheat (HRW) States reduced their crop ratings from December to January and in February Kansas crop ratings were the lowest for 12 years.
Winterkill in Eastern EU and Russia earlier in the year is no longer a concern, but unusually wet spring weather in parts of northern EU, including Poland, Germany and the Baltic States has reduced the planted area by up to 30%, and the EU has revised its production estimate downwards by around 600,000 tonnes.”
In the UK, we estimate 2017/18 production at 14.5MMT, similar to the 14.46MMT in 2016/17, but lower than the DEFRA/ AHDB figures of 14.8-15.1MMT WHAT ABOUT THE UK?
“In the UK, we estimate 2017/18 production at 14.5MMT, similar to the 14.46MMT in 2016/17, but lower than the DEFRA/ AHDB figures of 14.8-
