Heatwave may not have silver lining for growers

It was the best of weather; it was the worst of weather – and Irish cereal farmers experiencing a tale of two very different seasons within the last year will see the results soon. It’s not necessarily going to be a happy ending.

With the 2013 harvest now underway, experts predict that with last winter’s extreme conditions, a fantastic summer and expectations of healthy global stocks, the industry here will be squeezed on all sides.

Yields are expected to be good across Europe, while speculators are putting their money on a bountiful produce of US maize, all putting serious pressure on prices.

In the futures market, heads have been turned by expected American output which, according to traders, will affect the price of Irish grain, particularly in the feed sector.

And, of course, it’s a volatile numbers game – last year, many farmers pre-sold their harvests at low prices only to be gazumped by low yields and consequent rising prices they couldn’t take advantage of.

If they had chosen to do the same this year, things would have been a lot brighter, but only about one in 10 have risked making the same mistake.

Main activity
In Ireland this month, combine harvesters have begun their long slog through thousands of acres of fields in an annual process that will last into September.

The winter barley crop comes first, accounting for as much as 12 per cent of the country’s total cereal. Winter oats follow that, making up about 3 per cent of overall output, primarily to supply the horse-feed market. The quality of both crops so far looks good compared to last year’s supply which was heavily weathered.

However, the main activity begins in August, particularly with spring barley and winter wheat, the latter of which will be significantly depleted due to sowing conditions (some 400,000 tonnes is predicted as compared to 900,000 in a good year).

Midway through the month spring barley will be harvested; spring oats toward the end of August and into September, as well as spring wheat which is not expected to yield large volumes either.

The total harvest runs from July to September, with some 11,000 cereal farmers and a total haul expected to come in at around 2.1 million tonnes.

"There should be a better yield this year for all crops because last year was a washout," explains Fintan Conway, executive secretary of the grain committee at the Irish Farmers Association (IFA).

“It was extremely wet from June on and also a significant reduction in incoming sunlight.Last year was not a good year overall because of yields, and a lot of farmers had sold forward at lower prices.”

Dreadful winter weather also meant that sowing was badly affected and many farmers were forced to switch to barley instead of wheat.

This year’s long cold spring in Europe delayed crop development but thanks to recent conditions things have improved.

“The view in the last few days in particular is that there will be a good crop in Europe in general,” says Mr Conway. However, because of winter wheat crops, 2013 is not going to break any recent records.

Bearish activity
Prices for Irish grain are generally set against those of imports. Last year as many as 60 per cent of farmers here chose to pre-sell at low prices but having been burnt by eventual low yields and rising prices, very few – about 10 per cent – have chosen the same path this season.

Instead, farmers will either sell at harvest or store their crops away in the hope that prices will rise. Whatever they chose to do, it’s a risk.

Prices are poor at the moment: about €150 per tonne for barley, while wheat generally goes for €10 more, so about €160 today at “green” prices (before processing or “off the combine”).

Overall, it is expected that an average of about €50 per tonne of grain is expected to be lost this year because of good weather, good crops and bearish activity on futures markets.

A lot of that bearish behaviour is due to expectations of great October harvests in the US. An early frost there now looks like the only thing that can prevent that but it is highly unlikely.

"Volatility is the name of the game but still the crops in the States aren't made yet so anything could happen. But at present they are all looking very good," said David Hickey, commercial director at R&H Hall, a major supplier to the Irish feed industry dealing in futures markets.

As a result, he says, the price of corn is at its lowest level in two and a half years, making it very attractive to the Irish feed sector and putting considerable pressure on prices here, particularly barley.

“We are looking at very big crops of maize right throughout the world. We should see a reduction in the cost of animal feed in the coming season.”

Mr Hickey also points to the fact that farmers were reluctant to pre-sell their 2013 harvests in fear of a repeat of last year’s misfortune – the irony being that unlike last year it would have been a good move.

“They haven’t sold anything, very little this year and this year would have been the right year to do it because they [prices] have drifted backwards,” he says.

“If they had of started selling last November they would have done very well. Last year they sold low, they had bad quality and they had reduced yields.

“The grain farmers are not going to be very happy with prices; it’s not going to be a great year for them,” he says, summing up an industry in which one season of fine weather is not necessarily all it takes to reap rewards.