“When prices take a big hit, it’s better to lose your hand than your whole arm.”
– Agritel Aanalyst Michel Portier
Many European farmers who had held on to grain in recent months in the hope of a price rebound are ready to sell at a loss as they fear crumbling prices may plunge even lower, analysts said last Thursday.
Cereals including wheat and maize rallied to all-time highs last season, fuelled by rising demand from developing countries, expanding biofuel production and poor supplies.
But markets saw a sea change in the spring when an outlook for hefty crops worldwide star ted weighing on prices.
Some farmers and co-operatives believed the fall was a limited correction from unjustifiably high prices and that strong demand and good exports or even a weather problem, such as drought in Australia last year, would likely keep them firm.
But the worst financial crisis in nearly 80 years, a slump in energy and other commodities markets, confirmation of large harvests and harsh competition took charge of prices.
Bearish grain growers, just like shareholders, now prefer to sell with a small loss rather than wait and be hit by a big one.
“It is a bit like on stock markets. When prices take a big hit, it’s better to lose your hand than your whole arm,” Michel Portier, analyst at France’s Agritel, said.
“No one can estimate the expected fall in consumption if there is a recession. So people are thinking they might as well sell off with a loss,” he added.
However, wheat prices in Europe are lower than production costs, which would likely limit further falls, even if the short-term trend remains bearish, analysts said.
More available grain put pressure on prices, encouraging already well-covered buyers to hold off, eventually creating a snowball effect that makes farmers more willing to sell.
“Mills often seem to have good supply cover and are not aggressively buying. So we are seeing selling pressure meeting sluggish buying,” a German trader said.
A large incoming maize crop also encouraged farmers to make room in granaries.
“Some farmers will have to free up storage space and may have to bite the bullet and sell some of their old crop,” a German trader said.
However, analysts stressed, even if some farmers were hit by falling prices, there did not seem to be a massive sell-off at below-cost prices.
“There is some concern about prices that are not recovering, but I’d say there is no reason for alarmism,” Paolo Abballe, cereals analyst at Italy’s biggest farmers’ association Coldiretti, said.
“Cash up front”
The credit crunch linked to banking turmoil also speeds up sales that could have been on hold in a different financial context, analysts said.
Jose Vazquez, a crop technician with leading Spanish farmers’ union ASAJA, said the credit squeeze had made farmers’ traditional cash flow problems worse as they had a narrower range of potential buyers.
“Farmers now have to sell to whoever can pay cash up front, rather than accept a promissory note from someone else they might not be able to collect from, which means taking six euros a tonne less,” he said.
– Additional reporting for Reuters by Svetlana Kovalyova in Milan, Michael Hogan in Hamburg and Martin Roberts in Madrid