Wheat production still a viable proposition for UK

The bulk of wheat production in the UK is still viable, even at today’s low prices of around 60/t, according to Julian Bell, chief economist at the Home-Grown Cereals Authority.

Speaking at the levy body’s annual conference in London, Mr Bell said most growers had decided to drill again this year, simply because they had to cover their fixed costs. “But if you can stop production and get rid of all fixed costs, you may be better off.”

Wheat and barley output from this year’s harvest was down on 2004. HGCA figures put wheat production at around 15m tonnes, equating to an exportable surplus of 2.5m tonnes – 300,000t lower than the last campaign.

The barley tonnage slipped 200,000t to 5.6m tonnes, but the closure of several maltsters meant domestic demand had also fallen, so the surplus remained similar to last year at about 700,000t.

Lower production and higher quality (see panel) might help to boost wheat prices this season, said Mr Bell. But production would have to fall 11.5m tonnes before exports were eliminated and domestic prices rose to meet the cost of importing wheat from abroad.

“Reaching import parity could raise the price of wheat by 10-15/t, but that could affect the chances of bioethanol producers setting up in the UK.”

The EU-wide crop this year looks set to fall 32m tonnes short of 2004 levels, according to figures from Strategie Grains, and 16m tonnes below initial estimates. But that would be cancelled out by record stocks, Mr Bell said.

Spain would remain a strong market for the coming campaign, but exporters should not expect to see the country’s full 8m-tonne shortfall being plugged by exports, he added. “Spanish imports may only rise 2m tonnes because importers saw the problems last year and started to buy more heavily, and because they will be looking to run stocks down.”