CAP reform update December 2013

Commodity update

Analysing the latest information we summarise our outlook in the short term for grains, oilseeds and milk prices.


1. Wheat and other cereal grains

Early forecasts based on estimated crop areas and trend yields, suggest that the grain surplus will increase for the 2014/15 marketing year. However, climatic and political influences may well reverse the current forecast supply and demand balance which is based on historic trends..

Key factors include:

USA drought. The USA drought is widespread but less severe overall than this time last year which was a good year for maize and soya bean yields.

USA wheat condition. US winter wheat is in unusually poor condition following an extreme winter and has a very similar rating to last year when production was poor. It is highly likely that crop abandonment (tends to be on marginal crops) will be relatively high but harvested yields may not be affected. In the USA the harvested area is usually around 83% of that planted.

Ukraine politics. In recent years the Ukraine has exported a significant volume of maize. It is also an important producer of winter wheat. Since both crops have now been harvested, there is no reason why the ongoing disruption should have an impact on supply for the current year. If there has been a slowing of exports (which does not appear to be the case) it would be expected that eventually this would reverse and prices fall. More serious is the disruption to this year’s maize planting as a result of uncertainty over input supplies and costs – this even extends to potential harvesting difficulties, for example, what if fuel is restricted?

There are currently two opposing factors in the Ukraine:

1) with inflation running at around 50% since last autumn there is extra incentive to plant as a hedge against inflation since the price is defined in dollars but:
2) high inflation means that the cost of imported fuel and gas will rise or supply may even be disrupted.


The factors currently driving up price are largely speculative based, not on actual loss of production, but expected loss of production. Prices could reach extraordinary heights or fall way below the current level given that the UK is expected to return to being a net exporter and sterling is strengthening against the dollar.

Current prices could be a market high but a high when sales need to be managed, at least in part, with an option. It is worth considering whether the price is likely to fall or climb by more than the cost of the option.

2. Oilseeds

US planted area for soya bean is anticipated to be higher than last year, perhaps reflecting the unusually high differential between maize and soya bean price. However, with the production cycles in Brazil and the USA being nearly six months apart, supply surpluses or shortfalls can change within the marketing year. There are also reports of soya bean hoarding in Argentina to manage financial uncertainty. Presumably this constriction on supply will eventually be resolved placing downward pressure on price.

In addition, avian flu in China, or spreading from China, may mean that changes in consumption become more important than changes in supply.


Oilseed prices look unlikely to recover unless the US drought extends and conversely, if avian flu spreads, the market may fall further.

Even if neither of these events happen current supply and demand factors mean that the first opportunity for a price rise is unlikely to be until spring 2015.

3. Dairy

There is likely to be downward pressure on UK milk prices this year as global (Fonterra) auction prices have fallen and UK production increases.


Key contacts

Andrew Wraith

Andrew Wraith

Food & Farming

Savills Lincoln

+44 (0) 1522 508 973

+44 (0) 1522 508 973