To sell or not to sell?

Sterling’s tumble is making it easy for UK wheat farmers to decide on their marketing strategy.

For producers in many countries, the wheat market is a difficult one to gauge for now, with so much depending on the Black Sea which, following Russia’s invasion of Ukraine, is enveloped by uncertainty.

Russia, with its record 100m-tonne wheat harvest, has huge export potential, but is surrounded by doubt over how much it will be able to ship, given the Western sanctions imposed over its invasion of Ukraine.

(Although the sanctions do not incorporate food, worries about falling foul of measures surrounding for example finance have deterred some importers from del with Russia.)

Volatile times

For Ukraine itself, every rumour on the pace of its grain exports under its deal with Russia – which faces renewal in a month or so – seems to cause a swing in prices, let alone talk on progress of the course of war.

Hightower Report noted that that “there is some support” for wheat prices “from fears that Russia/Ukraine war disrupts exports from the Black Sea, and also concern with Russia’s threats to use nuclear weapons”.

But the analysis group added: “This support may be short-lived,” as has often been the case in the volatile market following Ukraine’s invasion by Russia in February.

Sterling support

For UK producers, however, the sterling slide accelerated by the new chancellor’s dismally received mini-budget makes their decision much easier – hold off unnecessary sales.

With wheat usually traded internationally in dollars, the pound’s decline has been a big and consistent boost to UK prices, in local terms (if of course coming with the downside that values of imported inputs are that much more expensive).

While the price of dollar-denominated Chicago soft red winter wheat is up by 14% so far in 2022, on a spot futures contract basis, sterling-traded London feed wheat futures have jumped by more than twice as much.

Cash prices show a comfort blanket too, with values of domestic feed wheat basis eastern England at a discount of some £28 per tonne to Ukraine corn imports, a big rival in UK livestock rations.

In milling wheat, UK supplies, basis north west England, stand at a discount of nearly £60 per tonne to imports from key alternative Germany.

Argentine lead?

Larry Summers, the former US treasury secretary, said after the mini-budget which caused the pound’s collapse that “the UK is behaving a bit like an emerging market turning itself into a submerging market”.

If so, UK farmers might consider taking following peers in another country with its own share of currency woes – Argentina – and make hoarding crops the default option, as a dollar-linked hedge.

Pass the silo bags…