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February 2018 Market Report

February 2018 Market Report

Despite the normal lack of trading around Christmas and the New Year; the UK markets have held up OK. Logistics have been an issue with still a lot of wheat being hauled from the South to the North; boats have been delayed by bad weather; also freight rates are very high; so a lot of December product will be carried over and executed in January.

Domestically we are managing our modest wheat surplus quite well; if you work on the Openfield wheat crop figure of 14.6 million tonnes – rather than the DEFRA 15.1 million tonnes – then we only have about 300,000 mt to dispose of up to June. That ought to be achievable. Compound feed demand is good in the UK, with a lot of extra poultry production. I said last month how important ethanol is; one UK plant has closed; there is some doubt as to whether it will re-open for production in the New Year. Politics is playing a part here as they are lobbying the Government for the ethanol inclusion rate to be increased from 4.75% to 10%; so we will have to wait and see what happens; meantime each month they are closed means 60,000 mt less wheat being consumed.

The UK is also disposing of its 1.1 million tonnes barley surplus quite well. It could be that 700,000 mt will have been exported by the end of December. I must say, that included in that figure are many more cargo’s of malting barley, than I thought we would be able to ship this year; because of the poorer quality malting barley in the South of England. In the bigger picture; demand, around the world is really good; and quietly that is a much bigger story than crop sizes or the big stocks we keep hearing about!

Take China for example; over the last 2 years it’s been ‘giving it large’ about reducing imports of feed grains; in order to use up its (alleged) considerable internal stocks. However; whilst chewing through these stocks, they have found that some of it has deteriorated! So, recently China has been buying a lot of Sorghum and Maize. Also, they don’t seem too worried about supporting domestic prices; as much of what they are importing is cheaper than their internal market. We could really do with China coming back into the world feed barley market; it was only 2015 when they imported nearly 10 million tonnes! – matching Saudi Arabia – this year they are expected to take only half of that; but you never know!

There has not been much of a ‘story’ yet; upon which to take any marketing view on new crop. As usual the big international hedge funds have not waited for any ‘story’ as such; and have simply sold the wheat futures short; based on the USDA mammoth world stock figures estimated for the end of June 2018. That said, we know that Spain and North Africa have had an ‘on and off’ drought for the last 2 years. The Baltic States have lost acreage because it’s been too wet to plant this Autumn; to a lesser extent this applies to Denmark and even Scotland as well, but this can be made up with Spring plantings. So, no concrete ‘story’ yet; but who knows perhaps demand will be a bigger factor than supply in the next year?

Canola and Oilseed Rape relationship is becoming trickier. The big picture still confirms that the world needs more Canola than will be produced this year; also the UK has on its doorstep its best customer; being the EU bio-diesel plants. But, we have 2 problems: the first is unrealistically strong Sterling – compared to the Euro. The second is; it’s rumoured that a small armada of Canola ships are on their way from Australia to Europe, to arrive in the New Year! Well if they are heading for Rotterdam or Hamburg, that’s not too bad; but if it’s Liverpool; then we may have the some ‘flattening effect’ on the market that we saw last January/February and also in July when cargos of Canola were brought in. My bet is; Sterling will plunge when the poor Christmas retail figures come out; so look to sell Oilseed when it drops to 85 pence.