A year to forget...

The weather has been 'variable' to say the least, with heavy rain in some areas but temperatures generally have been higher than normal and some late December temperatures have been at record high levels. Here, in the Borders, we have had 602mm, or 23.67 inches this year with just a few days to go in 2015, compared to 650mm or 25.5 inches in 2014 - so not a great variation year on year. There are concerns for winter crops in the Northern Hemisphere, where a lack of snow could cause problems if severely cold weather arrives. Snow insulates crops from hard frosts and also provides vital moisture in the spring when temperatures rise. By December 31, last year, the majority of Europe through to Russia had an adequate amount of snow, so far this year they have not even had a dusting to protect crops. And, 2015 has also been a year of falling commodity prices and this week, May, 2016, feed wheat futures found a new contract low of £115.50. This contract has lost more than £30 during the past year and there is little prospect of a rapid turnaround in fortunes in 2016. World markets are weighed down with stocks and there are no signs of a major weather or supply issue that could return prices to where they were 12 months ago. Even in the UK the 2015 final crop production for this past harvest has been increased to 16.4m tonnes - the fourth biggest harvest on record - and final yields have been reported at 9t/ha. Export orders are hard to find and less than 1m tonnes will have been shipped out of the UK by the end of this year and the prospect of exceeding 3.5m tonnes by next harvest looks increasingly remote. This will mean a continuation of old crop prices trading at a discount to new crop and result in substantial end of season carry-over stocks. The price carry between May, 2016, and November, 2016, reached £7.85 per tonne and is the highest premium recorded between these two contracts since late November. The increased strength of the carry between the old and new crop contracts increases commercial incentive to keep grain in store until next season. Furthermore, from July to October this year, the UK has been a nett importer of wheat, despite a second consecutive crop of more than 16m tonnes and it is likely that the end of season stocks in July, 2016, will be even higher than this year. UK wheat exports for the year to date total 518,000 tonnes, compared to 507,000 tonnes last year and wheat imports total 574,000 tonnes, compared to 710,000 tonnes at this time in 2014. In Europe, export markets received some support from a weaker euro and good export tonnages but this still left exports 13% behind year-on-year. To date, EU wheat exports have hit 11.4m tonnes, compared to 13.6m tonnes to date last year, while maize imports are up from 3.5m tonnes to 5.6m tonnes to date. EU wheat production is forecast to drop for the first time in four years in 2016, with the crop projected at 143.6m tonnes, which would be 6.4m tonnes less than this year. Currently, Australia is one of the cheapest origins of grain - even cheaper than wheat from the Black Sea regions, which have traditionally held sway on that bottom rung. Australia is forecast to export up to 18m tonnes of an estimated total tonnage of 25m tonnes by the end of June, 2016, but even that's some way off its record export tonnage of 25m tonnes in 2011/12. The dollar has strengthened against both the sterling and the euro, after the recent US interest rate rise from 0.25%-0.5% and a stronger dollar could potentially add further to the difficulty the US is currently facing in competing on export markets. However, this alone is unlikely to be a major boost for UK export prospects as all other countries will have benefitted from the stronger dollar as well. UK barley exports to date are slightly up from last year's total of 464,000 tonnes to 498,000 tonnes and EU barley exports are up from 4.2m tonnes to 5.1m tonnes. The gap between UK feed wheat and barley spot prices has increased from £7 per tonne in late November up to £9.60 this past week, mainly due to price support for wheat, rather than declining barley values. This would suggest that animal feed manufacturers are likely to maintain barley in feed rations, given the current feed grain price relationships. If the price gap between wheat and barley tightens, barley may become a less attractive animal feed ingredient and lose favour to wheat. Wheat has a higher nutritional value than barley and so would be a better value for money if prices moved closer. The main concern for crops in the Northern Hemisphere as touched on earlier is the increased winter-kill risk due to the lack of hardening to date given record mild record autumn and early winter conditions with no snow to date to protect the crops in the event of cold severe winter conditions. This is one issue to look out for and could see prices improve if cold weather does come and forecasters are expecting it sometime into early next year. It only remains for me to wish you all a very happy Christmas and let's hope we all have a more prosperous New Year.