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​Raw Material Update September

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​Raw Material Update September
By Carwyn Worthington 2 months ago

Cereals

With harvest now nearing completion and predictions for a domestic wheat crop of 16mmt and above, we’ve seen ex-farm prices come under some considerable pressure. If we look back to pre-harvest values, the London wheat futures for November have dropped by around £10 to £15, dependent on the day.

However, the last week or so has seen some recovery in these prices, largely supported by export volumes in the south of the country. Long-term, it’s difficult to get away from crop size, both here and across Europe, which should continue to weigh on ex-farm prices.

It’s a similar story when we look at barley, with excellent yields across the country. Barley is currently trading approximately £10 below wheat prices.

Proteins

Governed by the Chicago Board of Trade, current soya prices look good value for money; trading below $300 on the futures market (usually anywhere below $300 is a good buy). These levels are quite surprising when you look at acreages planted in the USA, which are considerably down on last year.

So why the low prices?

Well, the world does have a larger-than-normal carry out of stock as a result of last year’s bumper crop. The China/USA tariff war, as well as the avian flu crisis in China have contributed to current price levels. Soya has also weighed on our domestic rape meal prices, which have had to track soya prices to remain competitive.

Fibre

Domestic winter sugar beet prices are now out in the market and are considerably lower than the imported sugar beet, with delivered farm levels in the mid £170s - some £10 below imported prices. However, this still looks expensive when compared to soya hulls which are trading £10 to £15 below.

Currency

Its been a very volatile period for Sterling over the past month, hitting its lowest level versus the Dollar and Euro since the referendum result. At one point, we were at £1.18 versus the dollar, as a result of all the uncertainty surrounding our Brexit negotiations and our political shenanigans. But over the past week to 10 days, we have seen a remarkable recovery as a result of Parliament voting to take the “no deal” option off the table and a very high probability of an impending election. At this moment in time, Sterling is at £1.25 versus the dollar and forecasts are for it to continue to strengthen.

Summary

For any customers looking to contract the winter, prices look relatively good value at present with grains, proteins and fibres all at year-low levels.

Are these prices likely to drop further?

Difficult to say, there is little to argue for grains going up in price, however, with November futures at their lowest level in three years, it’s probably a good option to cover at least some percentage of their requirement. Likewise, for proteins and fibres, soya levels are relatively low and if the USA and China come to an agreement on tariffs, then prices could rise quickly and steeply.

The only tool on the horizon to pressure import materials such as the soya is currency. But it’s always a dangerous game to try and second guess how currency is going to react to market and political news - especially in these uncertain times.

If customers wish to discuss prices further please contact the Wynnstay Trading Desk on 01691 828 512 for up-to-date values.

Written by Carwyn Worthington, Trading Manager (Straights)