Tuesday, 19 December 2017

December Update

December can often see a firming in spot trade with farmers reticent to sell. Cash-flows bolstered by the arrival of the single farm payment coupled to farms shutting down for Christmas from mid-December onwards make it a hard month to buy, often leading to a short rally. Whilst the closure of the Vivergo plant at Hull has taken some of the steam out of the market, there are still plenty of buyer’s in the market; however this is yet to translate into any meaningful increase in values. December old crop continues to trade at £143-145/t depending on location, with a carry of £1/t/month further on. It would be hoped that buying-demand in January may lift the market but at present the atmosphere is as dull as dishwater.

New crop provides a much more compelling argument; values have drifted over the last month and now sit at roughly £142 for November’18 and £137 for harvest. Wheat crops in the north are variable, with those drilled in wet and cold conditions or following potatoes looking a little thin. Over the last four years the world has produced four big grain crops, with Russia setting a new record for its own grain production each year. With this in mind, it could be argued that one of the big producers is due a poor crop sometime soon. Furthermore, if domestically we do not produce more grain next than this, it is hard to argue why values should be much lower than they are at present. Ultimately though, currency will likely be the greatest influencer with the relative strength of the pound managing the risk of imports.

Despite the perceived flatness of the wheat market, wheat in the north continues to trade at a substantial premium to the rest of the country. This is certainly worth bearing in mind when looking at low-grade milling premiums, which are often negligible. The delivered value of wheat to Ensus is virtually the same as into most Yorkshire mills for all but full-spec milling wheat. Therefore it is prudent to double-check the feed market before trading a ‘premium’ and opening the door to claims you may have otherwise avoided.

Feed barley is still trading relatively horizontally at £128-130/t for January; again this seems to have found a comfortable level and, given the poor export market for feed barley, is unlikely to fluctuate.  OSR (Oilseed Rape) has had a fairly torrid time over the last few weeks; the French recently reported that OSR plantings are up 9.5% year-on-year, leading to a further reduction in values. A slight recovery in the value of the pound has led spot OSR values to fall to around £308/t for December. Very little OSR has traded in recent weeks since values fell from £325 spot. Given the time remaining until the next harvest, and the volatile nature of the OSR market, most growers will be happy to sit and watch in the hope there will be another £10-15/t rally.

Early December saw a rapid reduction in the value of Urea, with the most competitive importer putting the product onto farm at £250/t for January, almost at parity with UK AN at £247/t on the same terms. Imported AN looks a much better buy against UK at the moment with a £15/t spread between the two. A recent sharp upturn in the price of natural gas will most likely see all suppliers move prices upwards as the cost of production increases.