Palle Jakobsen, founder and chief analyst at Agrocom, on price outlooks, market cycles and the importance of margins and cash flow for European arable farms
The cereals and oilseeds markets could be on the cusp of a new upward trend. However, higher crop prices alone do not guarantee improved profitability. Palle Jakobsen explains which market and cost developments are crucial for European arable farms and why margin and cash flow management remain particularly important.
European arable farmers face a difficult combination: signs of a recovery in crop prices, considerable geopolitical uncertainty and pressure on production costs. My assessment is that grain and oilseed markets are moving towards a new upward phase in the commodity cycle. However, higher selling prices alone will not necessarily improve farm profitability.
At Agrocom, we combine fundamental analysis with technical trend analysis. Fundamentals help us assess where we stand in the production cycle. Technical analysis helps us identify when prices begin to reflect that change.
The stock developments underpin our assessment that grain and oilseed markets are moving from the late stages of a downturn towards an emerging recovery. Weak margins eventually discourage production, while demand continues to absorb supplies. Stocks relative to use are particularly important: substantial stocks in tonnes can conceal a tightening balance if consumption is growing.
The technical picture adds weight to this interpretation: Breakouts from prolonged bottoming formations in wheat, maize and oilseed markets suggest that market participants are beginning to recognise the changing balance. This supports a more positive long-term price outlook, although corrections will remain part of the process.
The Black Sea can change the short-term picture
The location of stocks matters as much as their size. Grain held in the Black Sea region does not offer buyers the same security as grain that can move reliably through established export channels. War creates uncertainty about transport capacity, delivery times and access.
This produces risks in both directions: Improved export access could release additional supplies and put prices under pressure, at least temporarily. Further disruption could produce another sharp rally. Either development can arrive with little warning.
It is also important to bear in mind the long-term trend: If low local grain prices and weak cash flow prevent Russian and Ukrainian farmers from maintaining planted area and input use, the next harvest could be smaller. Part of today’s apparent surplus could then disappear through lower production. This is a risk to monitor, rather than a settled forecast.
In oilseeds, weather provides an additional uncertainty. An El Niño-related disruption to Southeast Asian palm oil production could tighten vegetable oil supplies and support European rapeseed prices.
My central message is that a more favourable crop price trend is welcome, but profitability depends on managing selling prices, purchasing costs and financing together.
Palle Jakobsen
The priority is to protect margins and cash flow
The broader commodity picture is a reminder that crop prices cannot be assessed in isolation. In our analysis, the recovery in agricultural commodities has lagged the wider commodity market. Rising energy and other raw material prices can increase farm costs, while higher long-term interest rates can make new borrowing and refinancing more expensive.
Consequently, part of the increase in crop revenues may be absorbed by higher costs. Crop prices may need to rise simply to maintain profitability.
For growers, this argues for a planned approach to selling. Selling portions of available grain as prices approach technical resistance can secure necessary cash flow while retaining some stock to benefit from further increases. The aim is to avoid making the farm’s finances depend on identifying the exact market top.
Purchasing decisions deserve the same discipline. Corrections can provide opportunities to cover input requirements where prices fit the farm’s budget.
EAF Commentary: Palle Jakobsen, founder and chief analyst, Agrocom
