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Poor 2012 weather to leave long shadow for UK growers

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The new year may not be such a profitable one for UK growers.

Sure, the coming of 2013 may be bringing somewhat better weather. Rain is in the forecast for January, but not nearly as much as that which brought the UK its wettest summer in a century, and maybe its rainiest year on record (that has yet to be confirmed).

But the damage to growers' returns from the poor weather may be hefty this year too .

Yield potential

Prospects for winter crops, which provide the bulk of UK grains output, have already been dented.

Growers would be unlucky to suffer a 2013 harvest as bad as last year's, when the heavy rains left yields at a 20-year low, and bushel weights, a key quality measure, at the weakest on records going back to 1977.

But with only some 80% of winter grains in the ground even by the end of November, even then past the ideal sowing window, crop potential has been reduced.

Furthermore, much of what was planted has been set back by the excessive moisture, and hordes of slugs which have thrived in the moist conditions, which have also kept farmers from spraying.

While there is still potential for spring crops, these typically produce lower yields. And their likely lift in popularity this year may undercut their claim for premium prices as compensation.

Help from corn

Indeed, the rub is that growers may struggle to get anything like the prices for this year's crops as they managed for last year's.

UK harvest results have less bearing on domestic prices than in days of yore, in these times of freer trade and depressed cargo rates. (The Baltic Dry shipping index is down 94% from its high in May 2008.)

A primary reason behind the high wheat values which made up for UK farmers for their dismal 2012 harvests was the drought in the US, which prompted such a shortage of corn that world use of the grain – an alternative to wheat in many uses - will fall in 2012-13 for the first time in 17 years, and at its fastest in nearly 30 years.

There is no certainty that UK wheat prices will get the same help this year.

Big US crop ahead?

In fact, the world crop price outlook appears bearish – unless another weather threat arises.

Already, there is plenty of talk of US corn sowings approaching 100m acres this year, and of a crop well above 14bn bushels (356m tonnes).

Without a major setback to these prospects, Chicago corn prices are likely to average $4.75-5.50 a bushel in 2013-14, according to the University of Illinois, at least 20% below current levels.

It is unrealistic to expect UK wheat values to remain anywhere near where they are now in those circumstances.

A proportionate drop in values of London wheat futures would take them to £164 a tonne – pretty much where HSBC has forecast that farmgate prices are heading.

Price falls

That should still leave room for a profit.

But, even assuming a return to 2011 yields, it would be a thin one, once all overheads are factored in.

Already, wheat prices have reminded of their ability for rapid decline, falling nearly 10% in London from late November highs, and by more than that in Chicago.

Growers should be prepared for more of the same, however poorly their crop perform.

By Mike Verdin

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