December 2018

By Vaughn Entwistle, Managing Editor, Milling & Grain

The grain markets had a turbulent year. How many times have you read that headline? It seems that, in recent times, every year is a turbulent year. However,2018 seemed to outdo itself with turbulence in the political world, turbulence in the financial world and turbulence in the grain markets.

Climate change keeps changing

Once again, the world"s climate confounded predictions and provoked concerned discussion as most of the northern hemisphere suffered through a summer of drought and wildfires, spiked with brutally long heatwaves.

In the UK, we shivered through one of the coldest winters in 40 years, only to swelter through one of the longest, hottest summers since the record-breaking summer of 1976. And, of course, the heat directly impacted crops, with wheat farmers experiencing lower yields and reduced protein.

Wheat prices are predicted to remain strong until the end of 2018 before gradually declining in 2019 on forecasts of a larger global wheat crop next season. For the UK in particular, the recent trend of being a net importer over the past few seasons has made it increasingly susceptible to global market fluctuations.

Political turbulence

As if the weather wasn"t enough, we experienced considerable turbulence in the political realm that spilled over into the grain market as President Trump"s trade war with China heated up. In retaliation for the US slapping 10 percent tariffs on more than US$200 billion of imported Chinese goods, the Chinese government struck back with tariffs on US$60 billion of American products – including soybeans.

This tit-for-tat showdown has brought pain to both American soybean farmers and Chinese pig farmers alike. (Beijing is even considering reducing soybean rations for swine.)

Many US farmers are planning to wait out the trade war impasse by storing their soybeans in silos, in the hope that 2019 will bring a thaw in relations. However, this strategy has placed
a strain on silo availability—so much so that many US farmers have had to resort to storing millions of dollars of soybeans in plastic sacks laid out in the open, while praying that the soybeans don"t rot.

Meanwhile, the Chinese are now sourcing soybeans from Brazil. This was a happy development for Brazilian farmers, who harvested a bumper crop earlier this year. The irony is that US farmers planted one of the highest soybean areas on record and enjoyed favourable growing conditions, only to see soybean futures on the Chicago Board of Trade sink 14 percent, the largest loss in four years.

So, what will 2019 bring? Will things get better? Can they get any worse? The best advice on how to handle an increasingly turbulent world seems to be to remain seated and keep your seat belt fastened . . . it"s going to be a bumpy ride.

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