Farm Ireland
Independent.ie

Thursday 22 February 2018

Price forecasts will give cereal growers little to cheer about

 

Stock image
Stock image

Fiona Thorne

The old saying 'steady as she goes' could be used to summarise the current situation regarding markets and income situation on tillage farms.

While production in Ireland and internationally is reduced on last year, and cereal prices are slightly higher than 2016, the estimated outcome of all of these variables is for only a slight increase in income levels on tillage farms in 2017.

This in itself is not a positive news story given the reduction in farm incomes experienced in 2016 on tillage farms as reported by the Teagasc National Farm Survey.

In 2016, the average family farm income on specialist tillage farms was approximately €30,000 and, putting this into context, is well below the reported figure for specialist dairy farms, which was just over €52,000.

IRISH HARVEST

The provisional harvest report published by Teagasc estimates that total cereal production is down by four per cent in 2017 relative to 2016 due to a combination of reduced areas (-6 per cent) and some crops experiencing lower yields.

The yield per hectare at harvest has been mixed across crops, with winter barley yields lower in 2017, whereas winter wheat and earlier sown spring barley yields report higher yields than 2016.

Grain quality has mostly been reported as good, but there is still some concern over remaining crops to be harvested. production forecasts

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The latest estimates from the USDA puts total global production of wheat and coarse grains for the current year down by over 56m tonne on 2016/17 production, but up by 21m tonne on the five year average. This story of downward movement in world grain production is mirrored for EU barley production, with total production forecast for the current marketing year down by nearly two million tonne.

However, the forecast for the wheat situation in the EU for the current marketing year is somewhat more positive, with Strategie Grains and the USDA estimating wheat production up by about five million tonne compared to last year.

At the national level, France appears to have registered the largest production growth with nearly a nine-million tonne increase over last year, followed by the Baltic countries, the Benelux countries, Poland, Sweden, Denmark and Bulgaria (+0.2 Mt).

Meanwhile, Spain's harvest slumps by almost three Mt year-on-year and production is also expected to be lower than last year in the UK, central EU (Austria, Hungary, Czech Republic, Slovakia), Romania and, of course, Ireland.

The latest USDA WASDE update for September has revised global ending stocks of cereals and consequently had a slight upward effect on prices in the following days.

The biggest development from the latest report was that the forecast for global wheat supplies were revised down by nearly one million tonne due mainly to revisions in opening stocks.

Total carry-out stocks in 2017/18, which is the real decider in terms of price formation, is forecast to decrease by nearly 25 Mt since the 2016/17 marketing year.

But it is important to remember that world ending stocks this year are still 20 million tonne above the five year average for ending stocks.

PRICE FORECASTS

Based on the global production story and ending stock situation forecast for 2017, it is not surprising that there is not much room for price inflation, albeit prices are trading some bit higher at the moment compared to the same period last year.

In the historic context, current prices remain low due to the ending stock situation. Based on green prices paid to farmers in the last few years, it is clear that current 2017 harvest price forecasts will give farmers nothing to be celebrating about.

OUTLOOK

For the farmer that is looking to the rest of the year for indications of price movement in deciding whether or not to sell their grain or hold on for another while, unfortunately there are a lot of unknowns at this stage.

In particular, notable bullish factors, which could lift prices later in the year, include the fact that the harvest is now nearing an end which means prices at the moment are probably hitting bottom.

Quality wheat on the international market is in tight supply and EU wheat stocks remain low at present, which are all bullish factors in price determination.

On the more negative bearish side, meaning factors which could pull prices down, most notably include the very heavy supply of corn on the market at the moment and on-going currency concerns with a strong euro, leaving EU cereals less competitive.

Dr Fiona Thorne is an agricultural economist with the Agricultural Economics and Farm Surveys Department, Teagasc


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