By Alistair Driver, Howard Walsh
WHEAT prices plummeted this week as the devastating earthquake and tsunami in Japan and ongoing political uncertainty in the Middle East caused panic among investors.
Yesterday (Wednesday, March 16), NEARBY wheat futures were down to £167.35/tonne on the London market, having fluctuated dramatically during the week. This represented a fall of over £30/t in 10 days and around £50/t on the high of last month.
Wheat, maize and soyabeans were all down significantly on the Chicago market as were wheat and rapeseed on the MATIF market. May LIFFE wheat was trading at £177/t.
The dramatic falls are being almost entirely driven by investors, mainly in the US, who initially became nervous over the impact of unrest in the Middle East last month on global economic recovery. These concerns exacerbated by last week’s earthquake and tsunami in Japan, prompting further heavy selling in wheat and other commodities.
Home Grown Cereals Authority (HGCA) senior analyst Jack Watts stressed that the fundamentals of global supply and demand were unchanged.
“These are largely global issues that have nothing to do with the UK,” he said.
But he said global markets generally had taken ‘a sustained hit’ as worries over economic recovery generated a shudder of panic.
US investment fund speculators, who had been confidently buying in maize, soya and wheat commodities over the past year and making large profits as prices rose, have been ‘frightened’ into selling, he said.
“These investors are very sensitive about changes to the global economy. The impact of events in north Africa and the Middle East on oil prices and the speed of global economic recovery, followed by what happened in Japan has frightened them, so they started selling some of their grain positions, effectively taking the money and running,” he said.
He said it was too early to say whether the markets would recover or continue to fall. The only thing he could say with any certainty is to expect more volatility.
“It is going to be a bumpy ride through 2011. This has happened and we haven’t even got into the main weather market, the northern hemisphere, when we could see changes in the fundamentals. So there is real potential for further volatility,” he said.
The events of the past few days will generate uncertainty for arable farmers, although they should bring some relief to livestock farmers, where high feed prices have had a massive impact on profitability, particularly in the pig sector.
NFU combinable crops chairman Ian Backhouse said the recent volatility was a ‘concern’ for arable farmers, particularly for those who did not fix forward prices in better days.
“It has underlined the importance of farmers being aware of what is happening and having a long-term strategy rather than a day-by-day approach. It emphasises that we need risk management strategies and to have the tools in place to enable us to compensate when prices fall like this,” he said.