Nervous time for grain growers as May volatility hits current multi-year price highs

IFA advises grain growers to use forward sale agreements 

Grain growers are watching the spike in world grain prices closely. File Picture. 

IFA has advised grain growers to consider forward selling a small percentage of their crop.

This follows a recent spike in world grain prices, because of renewed weather concerns, with Irish new crop future prices following suit.

In April, forward prices for barley and wheat jumped by almost 15%.

IFA said green harvest prices of over €180/tonne for barley and €200/t for wheat were offered.

In comparison to this time last year, forward prices are €40/t higher.

But is there further “upside” in the market?

The big grain buyers here have also alerted growers to the opportunity to lock into the grain price increase since last September, through forward selling, with forward prices for the 2021 harvest having reached their highest early summer level for several years.

Glanbia had advised growers that forward selling can mitigate the risk of uncertain future price movements, and growers should be cautious, with selling little and often recommended, rather than try to guess when markets might be near their peak. 

It sounds like good advice, especially now, as the first week of May usually marks the halfway point in US maize planting.

Cold and dry weather in the US left planting at only an estimated 17% of the expected acreage by Sunday, April 25, three percentage points behind the five-year average.

However, after a week of good progress, by last Sunday, maize planting was estimated to be 46% complete, versus a 36% on average for the end of April.

But there were still concerns about dry weather affecting wheat and maize yields.

With US maize stocks forecast to be unusually low before the next harvest, even a small delay in planting could have a big market impact this year.

The US is predicted to have only 33 days’ or roughly one month’s supply of maize left at the end of August.

The USDA will release its first full market forecasts next week, on May 12.

The size of the US maize crop is one of the biggest unknowns which drive global grain prices.

Will American farmers respond to current high global grain prices by sowing as many acres of maize as possible?

What about other huge grain growing areas such as the Ukraine and South America?

Fortunes hang on the answer to these questions.

With agricultural commodities now part of what may be a commodity super-cycle, and managed money funds betting big on grain prices falling or rising, they stand to lose billions if they make the wrong decisions.

Their investments are behind agri-commodity prices climbing 15% since the end of March, to price levels not seen since 2013, when bad weather affected crops across the globe.

Global grain prices have been extra volatile in recent weeks, with weather and profit-taking by fund traders the main drivers.

There was a mixed picture for new crop prices, but sharp gains for old crop May 21 futures contracts which are approaching their last trading days, adding to the volatility

Weather is of course a major unknown, because it affects planting, crop growth, and harvesting.

Over the past year, global grain prices have rallied, as managed money funds reacted to frosts in the US, pessimistic Brazilian maize forecasts, and a host of other market trends.

According to the Commodity Futures Trading Commission (CFTC), the independent US government agency which regulates derivatives markets, 22.2% more investment funds are betting that grain futures will go higher than go lower.

Therefore, they can sell their contracts now at a profit.

But that isn’t pulling future prices down, because plenty are still betting on prices rising, because of a tight global supply and demand situation.

And how much maize will Brazil grow? 

The current situation is that there could be further cuts to crop estimates, unless there is substantial rain in Brazil .

This could tighten global supplies and place extra reliance on the US crop.

How will wheat crops do?

How will the Russian export tax affect markets?

How much grain does China need (Asia accounts for 30% of global maize imports)?

There has been cold, dry weather in parts of Europe, including France.

However, good conditions are reported in Romania and Ukraine.

Ukraine’s wheat crop could yield a record 28.6 million tonnes harvest, which could slightly reduce global market bullishness.

Will currency fluctuations affect the global grain trade?

Which crop will win out in the fierce competition in the US between maize and soybeans for acres?

More farmers may turn away from maize, after Chicago soyabean futures prices recently reached an eight-year high, despite profit-taking by funds.

Weather interruptions in the soyabean harvest in Argentina could lift prices further.

Soyabean plantings in the US are estimated to be 24% complete, slightly ahead of the five-year average.

But that could change.

Such is the guessing game on which grain prices hinge.

As the answers materialise, if markets soften and funds unwind their positions, futures prices could fall quickly.

Or the market may stay strong.

However, history shows that grain price was lower at harvest than early in the year, except in 2012, when bad weather affected crops across the globe (including the worst US drought in over 50 years).