Cefetra Market Report:

May 2022


Our markets continue to be dominated by events in Ukraine


You will not be surprised to hear us say that the war in Ukraine is still a large driver in grain price discovery.  The last month has brought no let-up in hostilities, and each news bulletin is painful to watch.

The difficulty faced by the grain trade is in trying to work out how much of the Ukrainian stocks are still accessible for westward export by road and rail for the near-term supply, and whether new sowings have been made and what is the prospect for tending those crops and getting them to safe harvest later in the year.  In broad terms, the “war premium” appears to be around £60-£70 in terms of UK wheat, with a good £10 or so each side as the floating volatility that each fresh episode brings when it hits the headlines.

Clearly this situation and the impact on external markets and economic activity is not easy to evaluate on a personal level.  We just don’t know what happens next, so to second guess these things is akin to trusting to luck, or more brutally – gambling.  Stick with what you know – your own farm business and the markets you directly have a stake in.

To that end, we see that the last month has brought a nice continuation of the trend to the upside, with London Wheat futures having gained around £30pmt for November delivery, with only a normal pullback recently on profit-taking and slow news days, and when we look outside and consider the decent local crop and weather conditions.  European markets are obviously more immediately affected by the Ukraine situation, but their prices show the same increase (Paris Milling Wheat futures are up almost exactly the same amount as London, given a normalised currency conversion).  Chicago wheat, the worlds backstop in terms of grain supply is also well valued, but the big money men – the Funds - are taking a breather there, probably in preparation for the silly season that is the North American Weather market.  With such nervousness about exportable supplies (remember the Black Sea Region speaks for 30% of global exports) any perceived issue with new crop production is going to fuel even more price rises.  Dryness in southern Europe and North Africa has eased lately but it remains to be seen if there is enough time for recovery in their crops.

There are concerns about slowing demand from China as millions are in Covid-19 lockdown, and also outbreaks of Avian Flu in the EU and US, but although these bearish aspects are not hurting prices at the moment they should not be forgotten.

Output prices are only one side of the equation though, and it is very easy to think that they have to be up in order to counter the wild input costs we must expect to face, though this relationship is really not well linked, particularly in the short term.  However, it is with some relief that we have seen a pullback from the spectre of 4-figure fertiliser prices.  At the time of writing, Nitram is trading at £760 delivered, and although this is still a 3-fold increase over last year, we advise keeping close to your gross margin calculator, as there will be days where even these big numbers still make for a healthy bottom line, and should be booked in to some degree.  In our last note we advocated no more than 30% cover on forward sales, and can see little to change this view any more than some minor tweaking as you become more comfortable with your yield expectations.

Do keep in close discussion with your merchant about likely pricing and your own targets.  There will be volatility and change, but that will also give opportunity, so if everyone knows their aims – both financial and logistical – then we can act quickly for everyone’s benefit.

If you wish to discuss your grain marketing, please do not hesitate to contact us: 

Simon Wilcox

Manager - UK Farm Grain Origination

T: 01963 363162

M: 07774 822507

E: wilcox@cefetra.co.uk

Marc Hinton

Farm Grain Buyer

M: 07957 791358

E: hinton@cefetra.co.uk

Josef Grinczer

Farm Grain Buyer

M: 07712 325197

E: grinczer@cefetra.co.uk

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