Rain has fallen in Scotland which has helped the late-drilled spring crops there, but for much of England, especially in the East, the dry weather is of growing concern. The dry conditions are now likely to affect cereals yields on the lighter land, despite the very wet spring. Some reports suggest the growing season has been curtailed at both ends, meaning less time for yield development. This is potentially true for all combinable crops including both cereals and oilseeds. Being a relatively small island on the global stage, the impact a lower harvest size would have on price tends to be relatively small, beyond possibly raising the import requirement for some grains. However, this factor is raising old crop prices for barley, but for most crops, sufficient carry-over is already arranged by processors.
After the significant rises in prices through May, markets for wheat for this coming harvest did not change over the month to the 25th June, despite about £6 per tonne volatility. However, the values for 2019 harvest rose by £7.30 per tonne. The spread of values really only took place since the 22nd June as shown in the graph:
As the chart also suggests, the wide price spread is unlikely to remain so large for long suggesting either the 2019 harvest prices will come back down or 2018 values move up. However, it also gives an indication of the markets expectation of tighter stocks in the future than there is today. This coming harvest, a lower global stock level is expected, albeit a small decline; perhaps the expectation for greater declines in the 2019 marketing year is mounting.
Markets elsewhere around the world fell in the month to June 25th; Chicago Soft Red Winter wheat for December 2018 for example slipped by over £15 per tonne. Since early March through to 12th June, a rise in market prices had been occurring on the back of dry conditions throughout Russia and several other wheat-producing countries; each potentially nearing stages where yield might become impacted by lack of water. However, the market falls have been entirely political, with rumours of Mr. Trump’s trade barriers reversing Free Trade and hampering almost all global markets, including agricultural commodities. As is often mentioned, trade wars are seldom helpful. Indeed, the US wheat market lost 8% of its value because of it, explaining the considerable divergence between US and European price movements.
From the opening of the November 2019 contract (Jan 2018) until 19th June, the markets have been gradually moving in the right direction for long-holders (farmers), with prices for 2019 harvest mimicking the nearer ones (just slightly less volatile). The declines in the Russian crop as forecast by the USDA and other teams of economists will continue to support prices. Those who calculate supply and demand tables are suggesting the global wheat stock level is likely to take a reduction this coming year for the first time in five years.
Maize production expectations in the US have been very high this month, with crop ratings at record levels for this time of year with 78% achieving good or excellent condition. The relationship with this measure and crop yields have not been brilliant in the past, but it certainly demonstrates that a drought (which takes a long time to set in and affects very large areas) is unlikely this year.
US soybeans took a greater price hit than wheat as a response to the developments in the global trade war, as such a high proportion of trade is sold from the US to China and tariffs have been imposed on this trade, which will profit the Brazilians and few others. US soybeans almost reached 10-year price lows in June.
The old crop pulse trade is now completed. Traders are reminding growers that this is key time for treating the most common insect pests including black bean aphid and bruchid beetle. Four out of every five downgrades of beans last year were because of the beetle.