Market Briefing - Year End 2020

Everyone’s main focus is currently on ensuring December movement programmes are executed safely amid Covid restrictions. Opportunities for new trade can wait for New Year when, perhaps, we will know where we are going with Brexit. January might be a bumpy ride as the various scenarios play out but we can’t guess today which one will prevail , so let’s instead take stock for a moment of 2020 – and before we leave it behind, consider if it held any clues to what we might expect next year.

On the first trading day of 2020, long May 21 LIFFE closed at £168.00 with GBP at 1.18 against the Euro. We already knew that a smaller wheat crop was coming at home and the UK would return to importer status, but with good crop prospects elsewhere there was nothing on the supply side to drive markets in the first half of the year. The scale of the pandemic - and the global response to it-  gradually dawned on everyone in March and left supply chains floundering to predict the consequences for some time. GBP lost ground as money temporarily rushed out of the City of London, but wheat prices lacked direction, so much so that we arrived at mid-harvest with the May21 contract at exactly the same price, £168.00, as it had been at the start of the year. The pandemic then, had not caused any real shift in the marketplace.  

The world gathered its biggest ever grain crop in 2020, but the market set off upwards as soon as it was in the barn, and kept on going all the way to today, gaining £32 in the UK or 18% in the process. Demand, therefore, is the only possible explanation. The impact of China’s buying strategies, has been very well documented on these page’s for some time. It has created tightness in an apparently well supplied season, overwhelming both big crops, and the extra supply released by lower demand for bio-ethanol due to Covid. The root of all this was the swine fever epidemic China suffered in late 2018. Unimaginable numbers of animals were culled and now have to be replaced. The epic scale of that challenge combined with a new attitude and approach to food security, mean this cannot possibly be completed in one crop cycle, and we estimate it to be a 2-3 year project. Certainly China has already purchased European crops for 21 harvest on a huge scale.

So, 2021 starts with the question, can we produce another record crop, big enough to satisfy the demand we already know is in place ? Europe has a better crop in the ground of course, but the short answer appears to be no – it is likely that demand will outstrip supply again next year. New crop prices have the potential to rise towards current market levels. Historically, the reason our markets can get to £200 but then stop is that this is the level that stifles demand and re-establishes equilibrium. So it would take real crop issues next year to drive markets beyond into uncharted territory, but we expect all crops to remain fundamentally supported as we head into our new relationship with the E.U.

Have a safe and Happy Christmas.