Grain price update

    Grain prices - up or down for 2012?

    As far as 2012 harvest prices are concerned, we are now deep in the period of rumour and counter rumour.

    The first round of forecasts for 2012 is remarkably consistent. Global grain areas are forecast to increase as illustrated by the International Grain Council (IGC) forecasts in the table below:

    2012 Crop Area Wheat Maize Barley
    International Grain Council +1.5% +0.6% +8.0%

    These are extraordinary increases in area given that the grain area is already higher than it was five  years ago and the variability in area has been small over the last 30 or more years. However, this is not expected to result in an equivalent increase in wheat production. Thus the Australian Bureau of Agriculture and Resource Economics (ABARE) estimate 2012 production at:

    2012 Crop Production Wheat Maize Barley
    ABARE -2% -3% +6%

    Production at this stage is almost entirely guess work and based on yield trends.  The problems  faced by the forecasters are very clearly illustrated by figures for Australia of the annual differences from trend yield  and the US on the difference between planted and harvested area (see graphs 1 & 2).

    Graph 1. Australian annual wheat yield % variation from average (1960 to 2011)

    While Australian wheat yields have tended to increase from 1960/1, as implied by the increasing number of yields above the average, there are still surprises and yields even in 2006/7 were 37% below the long-term average. Yields in the last two years look exceptional compared with the four prior to that.

    Graph 2. USA crop loss between planting and harvest (%)

    Much of the world has a large difference between planted and harvested area.  Over the past 50 years the annual crop area  loss in the US has averaged 13% but has been as high as 24% (e.g. in 2002).  

    These variations are enough to turn an apparent deficit into a surplus or a surplus into a deficit.

    There is no doubt that the current wheat price is high, largely on the back of these figures but there is also some genuine concern about crops in parts of South America and frost kill in the Ukraine.  These concerns need to be converted to reality to secure this price level for the 2012 harvest – the chances are that by the time we reach next November prices will be, either, a respectable  £20/t higher or lower than now.  Sophisticated risk strategies put in place over the period until mid June 2012 look likely once again to achieve the highest average returns.

    Key Points

    • 2012 harvested crop area and final yield difficult to predict at present
    • November 2012 prices might be £20 per tonne either side of today’s prices
    • Positive strategies to manage risk offer likely to achieve highest average returns

     

     
     

    Key contacts

    Andrew Wraith

    Andrew Wraith

    Director
    Food & Farming

    Savills Lincoln

    +44 (0) 1522 508 973

    +44 (0) 1522 508 973

     

    Steve Hollis

    Steve Hollis

    Director
    Food & Farming

    Savills Salisbury

    +44 (0) 1722 426 853

    +44 (0) 1722 426 853

     

    Ashley Lilley

    Ashley Lilley

    Director
    Food & Farming

    Savills Cheltenham

    +44 (0) 1242 548 012

    +44 (0) 1242 548 012

     

    Giles Hanglin

    Giles Hanglin

    Director
    Rural Research

    Savills Margaret Street

    +44 (0) 207 016 3786

    +44 (0) 207 016 3786