Grain markets are entering an unprecedented fourth year of surplus but all is not as it first appears.

With comfortable stocks and record production continuing to put pressure on world prices, a dramatic shift in global supply dynamics could add vulnerability to the market. For the UK though, the depreciation of the pound since June has prevented domestic prices from falling as much as global values.

Transparency is gradually being lost, as countries with patchy data increasingly dominate the marketplace. And though the market is over-supplied on paper, the risk of price shocks should not be underestimated.

So said lead analyst Jack Watts during his keynote presentation at the AHDB Grain Market Outlook Conference.

The event, themed ‘getting ready for a new agricultural world’ was held on 12 October in the City of London.

In his 2016/17 Grain Market Outlook presentation, Mr Watts demonstrated since the 1972 ‘Great Grain Robbery’, the US has lost significant market share in wheat trade, mainly to Russia and post-Soviet states.

In addition, Chinese figures are skewing perceptions of global stocks-to-use, with a far lower ratio emerging when these are removed from the equation, even more so for the world’s top six wheat exporters.

A poor European harvest against record Russian production also means Russia is set to overtake the EU as the world’s largest wheat exporter.

This may be a warning light to the market in the medium-term given the inconsistency of Russian wheat production, which has varied between 38Mt and 72Mt over the past five years.

UK situation

At UK level, Mr Watts said we were living in ‘interesting times’ from both a market and political point of view.

Last season, markets were driven by high yields and high exports into the feed wheat market but for 2016/17 availability is lower and quality improved.

Based on provisional Cereals Quality Survey results, increased plantings of nabim Group 1 and 2 varieties mean close to 20 per cent of UK wheat is likely to meet minimum bread wheat milling specifications.

But Mr Watts urged caution when looking at the figures. He said: “Protein content is higher but the quality and functionality of that protein is more challenging this season with lower specific weights impacting  flour extraction and yield.”

Barley continues its renaissance in the UK, thanks to the rotational requirement for spring cropping and its benefits for black-grass control, a level of production consistency not seen since the late 90’s. On paper, a large surplus of UK crop looks promising for exports but low specific weights may hamper progress.

Watch list…

Five other market trends to keep an eye on

1) Brazilian maize: production of the far-riskier second crop has overtaken first crop in the last few years, meaning weather events could impact supply later in the season

2) Russian import ban: as the ban on EU food imports continues, Russia is speeding up self-sufficiency ambitions with domestic consumption forecast to rise significantly for the sixth year running

3) Global oats markets: EU import tariffs on oats have meant we have never had to compete at a global level so some intensive market development may be called for post-Brexit

4) UK plantings: renewed interest in Group 1 and 2 varieties has squeezed Group 3s but the characteristics of these varieties remain popular with importers, a USP for the UK in exports markets

5) Changing shape of rapeseed trade: new patterns are emerging, with sharp falls in production in western EU offset by uptick in supply from Romania and Bulgaria

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Also on the agenda

Christophe Cogny, Biofuel & Oilseed Market Analyst at Tallage, gave an oilseeds market outlook for 2016/17. From a global context this season, meal markets are going to display a bearish sentiment driven by record soyabean output. For vegetable oils, markets are likely to be tighter but crude oil is thought to cap price gains.

Samuel Ferreira Balieiro from Agri Benchmark, spoke about exploring international competitiveness in grains and oilseeds. He gave an overview of how profitable wheat and maize production is around the world as well as identifying the cost leaders.

What could Brexit mean for cereals and oilseeds markets?

New analysis on the implications of future trade policy scenarios for the UK’s farming and horticulture industries was launched at the event.

The latest Horizon report explores how trade deals with the EU and the rest of the world following Brexit may impact UK agriculture and horticulture on a sector-by-sector basis. It profiles each sector’s current trading position in the global arena and highlights the opportunities and threats associated with various potential terms of trade.

AHDB’s Head of Strategic Insight David Swales explored these themes in his presentation at the conference. He also outlined the place of tariffs in contributing to UK competitiveness, the likely impact of any reductions in agricultural support and consumer attitudes to food shopping choices.

He concluded with a warning that: “UK farmers and growers cannot rely on consumers being willing to spend more on British products so the industry needs to focus more on price competitiveness.”

Download the Horizon report at www.ahdb.org.uk/Brexit

All videos from the event will be available on the AHDB Cereals & Oilseeds youtube channel