RECORD WORLD cereal crops in 2004 and dreadful harvest weather in the UK caused London feed wheat futures to almost halve over the year.
From their seven-year peak last December, they dropped to just over £60/t in September 2004.
The 15.7m tonne wheat crop left an exportable surplus of about 3.1m tonnes – 1.1m tonnes more than last season.
With not enough good quality wheat, and too much feed, exporters were faced with a vastly reduced market.
But exports are now on target and markets are still sensitive to potential global shortfalls, with next season‘s crops still far from guaranteed.
Black Sea countries enjoyed an excellent quality harvest, and subsequent logistical wrangles opened the door to UK exporters.
Aided by a generally weaker pound against the euro, the UK has now exported about half its wheat surplus, and January futures have steadied at about £65-£66/t.
Milling premiums have reached about £25/t for top quality Group 1s and up to £10/t for the best soft wheat.
Imported German supplies have now capped these milling values.
Unless farmers discover more good quality wheat in their barns – which is possible – the market will continue to be influenced by freight rates and currency.
Although the UK has enjoyed unexpectedly good demand into the EU so far this season, exporters may need to find third country homes later in the year, where they would have to compete against much cheaper US maize.
Fortunately, it seems more likely that the EU will introduce export subsidies on wheat, having already done so on barley.
Although the EU entered the season with very low grain stocks, bumper crops have already swelled intervention stores to almost 9m tonnes, and the EU is unlikely to let this grow too far.
If introduced, export refunds should boost prices slightly to encourage wheat away from intervention into the port.
New crop wheat plantings are forecast to have risen by 2.5% in the UK and by 3-4m hectares worldwide.
This could weigh on prices towards the end of the spring, as well as on new crop markets, which are trading at less than £70/t pre-Christmas.
But world wheat stocks, although 10m tonnes larger than last year, are still vulnerable to any crop problems in the coming season.
A small variation in yield could make the difference between a surplus or deficit – and at this early stage almost anything can happen.
Barley prices are also being supported by intervention and export refunds, and have traded at about a £5/t premium to wheat for much of the year.
Forward values will depend on currency and how much malting barley is eventually downgraded to feed.
New crop plantings are almost 9% down. Little feed barley is trading, although it is nominally priced at a discount to feed wheat.
Malting premiums are pegged at £15/t over feed.