Nogger's Blog

31/12/15 -- At the official closes for 2015, Jan 16 London wheat was GBP0.10/tonne higher at GBP114.00/tonne, Mar 16 Paris wheat was EUR1.25/tonne lower at EUR173.50/tonne, Jan 16 Paris corn was down EUR2.25/tonne at EUR144.50/tonne, whilst Feb 16 Paris rapeseed was unchanged at EUR374.00/tonne.

For another holiday shortened week that puts London wheat GBP1.55/tonne higher, with the Paris market down half a euro, corn EUR6.00/tonne lower and rapeseed EUR0.75/tonne weaker. A pretty mixed bag there.

Perhaps more noteworthy is that for the calendar year, this means that London wheat ends it with a net front month loss of GBP19.30/tonne (14.5%). Paris wheat is down EUR26.50/tonne (-13.3%) versus 12 months ago, corn ends 2015 EUR18.00/tonne easier (-11%) and rapeseed is the sole of the sector to advance for the year, closing with a net gain of EUR23.00/tonne (up 6.6%).

It's also worth noting that subsequent to last New Year's Eve's London wheat finish of GBP133.30/tonne, a front month only closed higher than that twice in the entire year! And that was on last Jan 5 and 6!

Paris wheat didn't fare much better. The 2014 close of EUR200.00/tonne proved to be within EUR5.00/tonne of the best finish of the year, although more than EUR50.00/tonne above the bottom of the market. Corn began 2015 at EUR162.50/tonne, but rallied to a high of EUR193.75/tonne as heat and dryness concerns hit in the summer. All those gains had disappeared by the end of the year though, and we end 2015 at the lows of the year.

Only rapeseed managed an annual net gain. Closing 2014 at EUR351.00/tonne, it rose fairly steadily throughout the year - without quite managing a close above EUR400/tonne -and finishes 2015 with an overall net advancement of more than 6%.

Looking at the old crop/new crop market differentials. Twelve months ago today, the new crop Nov London wheat position was a GBP4.50/tonne premium to the nearer-by old crop May position. The very far long Nov - around 18 months hence - offered a further GBP4.90/tonne "carrot" to those looking to lock in a premium. Tonight we see a new crop Nov 16 premium of GBP12.15/tonne and a long Nov 17 premium of GBP18.20/tonne versus front month Jan 16 (and GBP7.65/tonne and GBP13.70/tonne) versus the May 16 position.

A year ago these unusually large carry incentives were enough to encourage high volumes of the 2014 wheat harvest to be stored right through into the 2015/16 marketing year. Today we have a situation where the incentives on offer are at least double what they were this time last year, and in some cases almost 3-times higher.

It looks like what is on the table today can only therefore re-enforce this as a viable strategy once more. Even with the premiums on offer though, many growers will still likely be reluctant to actually commit to fresh forward sales hoping for a turnaround in prices in 2016. "However, the last ten years tells us that pinning hopes on a major rally in the second half of the marketing year has the odds stacked against it," say the HGCA.

Looking at the last old crop month, the July contract in each of the last ten years, for seven of them "the price at the end of the marketing year, and indeed through much of the six month period, was lower than that in early January," observe the HGCA.

"For the three years that did end up above the January price levels (2006, 2007 and 2012), the momentum was driven by relatively tight grain stocks and new crop weather issues. For 2016, it’s clear the world and UK has high stocks, so it will be down largely to weather issues this spring to bring life into to the old crop market," they deduce.

So, it looks like UK growers begin the new year much as they started off the old one: Carrying stocks, not liking the look of prices enough to commit to sales in any position, but comforted somewhat be the large premium being offered to stick with this as a marketing strategy for now (and seeing few other viable alternatives).