Quality premium more volatile

MILLING WHEAT growers have been told they cannot rely on the market to deliver a decent premium for their efforts.

Home-Grown Cereals Authority senior economist Gerald Mason said that global wheat production for 2004 was likely to settle to more “normal” levels.

But with stocks still at a record low, weather will have an enormous impact on prices, and on potential premia for quality wheat.

“We‘re walking a fairly tight rope with the low stock situation,” he told delegates at the Milling Wheat conference near Cambridge on Wednesday (May 5).

“If it is important to your business you receive a certain premium, the only way you can do this is to separate it from the base price and manage both aggressively.”

Experience from the last two seasons shows how vulnerable the milling premium can be, Mr Mason explained.

In 2002, a poor quality UK harvest was compounded by quality problems in the US and drought in Canada and Australia, but a massive feed grain harvest in the former Soviet Union.

This “interaction of factors in the milling and feed grain markets”, which brought a record high quality premium, was reversed in 2003, and the premium plummeted.

“If you need a premium, you have to work out how much and you have to find ways to secure it before planting the crop,” advised Mr Mason.

“If you can‘t do that, then concentrate on maximising feed grain returns.”

International Grain Council estimates indicate a 40 million tonne recovery in global wheat production for 2004, based on plantings to date.

Most of this will come from the EU, Ukraine, Russia and India, said Mr Mason, “but it can move 20-30mt either way.”

Initial drought risk assessments show key wheat-growing areas of the US and Canada could be affected, which would have a big impact on prices.

“Canada‘s crop is only in the ground for 90-100 days so really will need timely rains,” said Mason.

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