High Contrast
December 2011
Comment from the Feed Mill – December 2011 – by Martin Humphrey
At the end of October, January wheat futures were about £151, and are now (25 Nov) about £141. Last month we reported that wheat fell about £10/tonne in the previous issue. So that is a £20/tonne fall in two months! No wonder then that arable farmers are not selling, and feed buyers are trying to buy spot. On falling markets it is hard for compounders to reflect the latest(and therefore lowest) price as anything bought yesterday is `wrong’ today, and many compounders have bought some wheat over the last couple of months, as you do not dare start a month with no wheat bought. In addition the added pressure of boats waiting to be filled with wheat, means that the physical price of wheat is being pushed higher than futures – a short term technical situation surely, as physical and futures prices cannot stay `apart’ for too long.
Many arable farmers are prepared to wait for higher prices, convinced that £170/tonne will be offered again. This however seems to be a case of `selective memory; and it is worth remembering that it was only for the 6 months between June and November 2010 when wheat was over £170, and in fact it was a 21-month period between October 2008 to June 2010 when wheat was below £125, and averaged about £105. Accurate price predictions for the future remain nigh on impossible, although, as reported at the recent EPIC conference, wheat prices over the next three years are likely to range between £100 and £250, a new and frightening level of volatility.
The optimism for higher prices is shared by US and South American farmers who are reluctant sellers of soya beans. China appears to be buying soya from South America, where sales go unreported, unlike purchases from the US where the USDA issues weekly sales reports. South American soya is more attractive due to the more favourable exchange rates. The net result is that US soya exports are about 35% behind last year’s exports, and 22% behind the previous year’s exports. The US has a huge balance of payments problem, which will only get worse if the current situation continues. If the US really gets squeezed, will they have a go at China for currency manipulation, and will China retaliate by buying South American soya [only?]. The South American soya harvest was in the spring, so stocks must be dwindling. US exporters must sell significant quantities before February when the window of opportunity closes due to the Brazilian harvest. Prices for soya have fallen almost $100/short ton since the start of September ($385) to $285/short ton, the cheapest price in $-terms for 18 months. Any Origin soya is about £250/t ex port and NonGM is £35/t more.
After three years of turmoil, the financial crisis is still very much a current issue, and arguably is worsening with no resolution in sight. Ultimately, financial issues will have more effect on commodity prices over the next few months than the fundamentals of supply and demand – so we can expect yet more continued volatility.