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Farming today

And tomorrow, and the day after
August 31, 2017

If, like me, you’re an early bird, you too may listen to BBC Radio 4’s programme about rural affairs.  I’m not a country girl, but I really enjoy this show and, perhaps because of my ignorance of the subject, I find it very instructive. Now it’s harvest time and because of the hot dry spring and soggy August, Britain’s wheat crop is expected to be a lot smaller and of poorer quality than we have come to expect.

But expectations are so often completely wrong or unrealistic. I clearly remember experts in the 1970s telling us that we would all be starving in no time at all because agriculture could not keep up with population growth. As we know this was patently not the case because research into seeds, growing conditions, irrigation and storage has meant that yields per hectare on most cereals have increased by two-and-a-half times or more since then.

This year wheat production is lower than last year in the EU and North America (because of heat and drought) but former Soviet Union countries have more than made up for that gap so that global production is expected to be 743.2m tonnes and year-end stocks should be a record 264.7m tonnes. This is lucky because world consumption is projected higher, with Indonesia, Nigeria and Russia leading that demand.

The price of wheat futures on the Chicago Board of Trade bears out this story, trading at a fraction of the price they peaked at during the commodities trading bonanza of 2008. A brief rally this June and July has been quickly snuffed out and we are back down at 2016 levels, in turn some of the cheapest in years and within the broad band established from 1973 to 2007. We expect this market to hold below the psychological $5.00 per bushel for the rest of this year and probably a lot longer, drifting slowly towards $2.50.

 

Corn, one of the so-called coarse grains (the others are barley, bajra, millet, ragi and sorghum), has also been in retreat since an interim high in July, trading at a fraction of the 2012 record high. Although there should be chart support to this market at $3.00 per bushel, the chance of a break below here by the year-end is high, which in turn would lead to a tendency to drift towards $2.00 or so, the bottom of the band from 1973 to 2007.

 

Oat futures, like all this week’s charts, are traded on the Chicago Board of Trade, have once again been capped at the $3.00 per bushel area, as has been the case for much of the past 30 years. A sustained break below $2.40 looks imminent, in which case we would allow for the market to slump to $1.50.

 

Rough rice prices have rallied for four consecutive months, mainly because US long grain production this year is down by 4 million hundredweight (cwt); it is the smallest crop since 2011-12 and yields are down to 7,513 pounds per acre; year-ending stocks at 30m cwt are the lowest in a decade.  With this in mind we would agree with the US Department of Agriculture’s estimate that prices should range between $12.20 and $13.20 per hundredweight.

 

Lower grain prices help householders, but are another challenge to central bankers’ inflation targets.