Interest rates likely to remain high: Grain market daily

Market commentary

• UK feed wheat futures (May-24) closed yesterday at £159.70/t, down £2.05/t on Tuesday’s close. New crop futures (Nov-24) closed at £177.95/t, down £1.55/t over the same period. Both contracts for these futures closed at new lows yesterday.
• The domestic market broadly followed the Chicago and Paris wheat markets down yesterday, with prices continuing to tumble.
• Low prices in Algeria’s import tender this week highlighted the fact there is still stiff competition from the Black Sea region. Algeria’s state grain agency, OAIC, is reported to have purchased 870 Kt to 900 Kt of milling wheat in an international tender. Prices reported on early Wednesday were between $227.75/t and $228.00/t on a cost, insurance and freight (CIF) basis. The wheat is from optional origins, i.e. sellers’ choice, but the low price means considerable volumes will be from the Black Sea.
• Paris rapeseed futures (May-24) closed yesterday at €422.50/t, gaining €0.25/t on Tuesday’s close. Chicago soyabean futures ended marginally down as traders await fresh market-moving news, such as the next USDA World Agricultural Supply and Demand Estimates, which are scheduled to be released tomorrow evening. Ahead of the report, analysts on average expect the USDA to lower its Brazilian soyabean production for 2023/24 to 152.3 Mt, from 156.0 Mt last month; this would still stand above other consultancies’ estimates.

Interest rates likely to remain high

In the AHDB's February Agri Market Outlook, we predicted that interest rates would be likely to start dropping in late spring/early summer, with a gentle downward trajectory throughout the year.

The downside risk was inflation. With inflation still well above the Government’s 2% target, it would be difficult for the Bank of England to reduce rates, despite the flat growth in the UK economy.

Since the Outlook was written, those downside risks have magnified. Attacks by Houthi rebels on commercial shipping have continued, forcing many ships to take a longer route around, adding to both transport time and costs. This is driving inflation for imported goods and is likely to prevent headline inflation dropping as much as was previously expected in Q1 and Q2 2024.

The upshot of this is that, unless hostilities cease, the UK is unlikely to see interest rates dropping until autumn 2024. For many borrowers coming off fixed rate deals during 2024, this will mean higher repayment costs going forward.

This is of concern to levy payers, with the latest data from Farm Business Survey showing the average level of debt across all farms in 2021/22 was approximately £272,400 – an increase of £26,300 from the previous year (Source: UK Gov).

This means careful attention should be paid to the structure of debt within the business and the effect repayments have on cash flow. Always speak to your financial adviser, but an illustrative example can be found here.

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