Grain market volatility as rainfall has impact

Downward pressure but hope for coming harvest

The old saying ‘rains makes grains’ seems particularly apt at the moment.

Recent rainfall in the UK has been obvious enough and may be driving down markets to a certain extent, but it is improved precipitation across the main growing areas of the US which has been the real driver for a steady slide in new crop prices.

There may be some hope for the coming harvest, however, with the futures markets still on edge despite the downwards pressure.

On Tuesday the May 2015 position closed at a contract low of £108.10 per tonne, falling £3.80 during the day.

The November 2015 contract, the first of the new season, also reached a contract low of £117.50, down a worrying £2.75 on the day.

But by last night there had been something of a rally. The May position gained £1.40 and November £3.25.

Analysts agree that the May position is unlikely to improve much, as large carry-over stocks from a bumper 2014 harvest weigh on the markets. The US has failed to clear stocks at the expected rates, thanks partly to a strong dollar.

As regards the new crop, the mighty US will remain pivotal but here the news is more mixed. The weather has been good, meaning adequate rainfall across the plains, but this is not quite being reflected in the crop apparently.

The latest US crop tour is finding lower yield potential than expected, with only 42% of the crops rated good to excellent, and 20% poor to very poor.

Against that, there has been huge progress in crop planting, with 36% of the expected maize crop and 20% of the spring wheat crop sown in just seven days. It represents an impressive mobilisation of tractor power but it could boost yields.

While Europe, Russia and Ukraine all report good weather, analysts at French company Strategie Grain put the EU wheat crop down 7.5m tonnes on last year at 141.4mt, partly due to a reduced acreage.

India also reported poor wheat prospects thanks to rain and hail damage, but the UK November 2015 futures contract has dropped £22 per tonne or 16% since the beginning of January.

On the positive side, currency exchange rates have suddenly moved in favour of UK farmers, with the euro strengthening in recent days. A euro is now worth 73.6p, making UK grain more competitive within the EU.

Also, harvest is still four months away, leaving plenty of time for a major “weather event” to move the markets.

Picture: Ewan Pate. Dark clouds over the harvest, but there is still everything to play for.