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What is the outlook for arable and feed markets in 2016?

After a tough year for grain markets, Joel Durkin looks ahead to what farmers can expect in 2016


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Farmers must manage the price risk of their crops amid a difficult period for grain marketing.

 

That was the claim from Jonathan Lane, Gleadell trading director, reflecting on a challenging year for the arable sector.

 

He said the US and Europe had retained a defensive price outlook and there remained the possibility prices could see further falls.

 

He said: “In the US, wheat prices have continued to slide following another good harvest.

 

“This, combined with the market’s failure to find enough export outlets, maintains the defensive price outlook for one of the world’s largest exporters well into 2016.

 

“With an eye to new crop, we have witnessed a steady improvement in US winter wheat crop ratings, with reports putting the crop at 55 per cent good-excellent, up 6 per cent points from the start of December.”

 

Mr Lane also explored the new Argentine government’s plan to cut export taxes on wheat and corn.

 

“The drop in tax could open up Argentina to increasing grain exports, which could in turn cut into potential demand for US hard red winter wheat, especially to Brazil. The tax cut could also encourage Argentine farmers to increase wheat or corn production,” he said.

 

But Mr Lane pointed to concerns about crop conditions in Eastern Europe.

Case study: Andrew Ward, arable farmer, Lincolnshire

Marketing strategies were key for Andrew Ward.

 

"Whatever you do, you must stick to that strategy nearly every year," said Mr Ward.

 

"I buy options and sell forward. I put some in a merchant pool and put some back after combining."

 

Mr Ward said he had sold a proportion of this year’s harvest about two years ago, but some was still to be sold and he would wait to see what happened with price after Christmas.

 

But Mr Ward claimed he was not optimistic on the outlook for prices in 2016.

He claimed conditions were mostly good in Eastern Europe although there were some persisting concerns about dryness. Mr Lane suggested, however, there were few tangible issues with crops so far.

 

Arable prices have traded within a narrow range over the recent months, with nearby LIFFE wheat futures failing to significantly rise above £120/tonne or below £110/t since August.

 

Experts have shared differing views on the potential development of arable markets over the coming months. The majority of analysts have agreed recently there is little to indicate markets will see significant rises any time soon.

 

But Mr Lane’s views offer a slightly more negative outlook to some other analysts, who have said in recent weeks further significant falls could be limited.

 

“In Europe, the 2015/16 wheat crop keeps getting bigger,” added Mr Lane. “Current prices represent poor, or in some cases negative, farm gate incomes. However, there remains a very real possibility things could get worse.

 

“Anecdotal reports suggest UK farmers could still have as much as 45 per cent left to sell and with little fresh demand on the horizon we are fearful that we may not have seen the lows.”

 

He claimed UK markets still contained ample supplies with struggling demand and long-term charts pointed to a continuing downward trend with technical analysts suggesting the LIFFE wheat market could fall to £88/tonne before finding technical support.

 

“It is imperative arable farmers manage the price risk associated with their crops,” he said. Mr Lane advised in addition to simply selling forward a proportion of production, there were tools to help manage risk. “These would include pools, minimum-price contracts and consumer-backed buybacks,” he said.


Feed market outlook

Feed market outlook

With soya and rape meal markets remaining volatile, farmers requiring feed may wish to look at covering short-term requirements.

 

This was the advice of Andrew Galling, commercial manager at Lancashire based Dugdale Nutrition.

 

But he claimed with grain markets remaining under pressure, there was less need to cover requirements for cereals feed.

 

He said: “The UK has a surplus of wheat in excess of three million tonnes which is struggling to find a home either domestically or in export markets.

 

“Within the UK we have largely seen consumers covering short and buying when demand needs to be met."

 

But Mr Galling claimed oilseed, soya bean and rapeseed meal markets had been far more dynamic in recent months.

 

"Improved physical supply of rapeseed meal has put downward pressure on prices. Determining the bottom of any market is notoriously difficult to predict but it is not a bad move to cover nearby soya and rape meal requirements."

 

CRM AgriCommodities said fund positions on Hard Red Winter (HRW) and Soft Red Winter (SRW) wheat in the US meaning they expected prices to fall further.

 

James Bolesworth, trading adviser, said: "This is adding further pressure to the cereals market, but buyers must be aware any weather risk would cause these funds to start buying positions back and cause accelerated price rallies, markets must therefore be closely monitored."

 

Mr Bolesworth added supply pressure could remain in soybean markets in 2016, despite prices being supported by short-term political uncertainty.

 

Case study: John Geldard, sheep farmer, Kendal

Case study: John Geldard, sheep farmer, Kendal

"We are pretty well fixed on our feed requirements. We usually fix our prices and we would sometimes fix for 12 months, but we have not done that because of the big surplus," Mr Geldard said.

 

"There are big stocks out there but things can change very quickly, [the UK is] a small blot in the world.

 

"The winter crops look wonderful. We could be talking at the end of April and the arable farmers could be saying if we do not get rain it will be a disaster."

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