Tight grain market ups premiums and pulls in imports

A stronger pound and tight end-of-season supplies have combined to draw wheat imports into the UK.

The breadmaking wheat premium has doubled to almost £10/t over the past four weeks, while feed wheat prices have risen by an average of about £3.50/t over the same period.

This took the average spot milling wheat price to £157.40/t midweek, with a range of £14.50/t between prices in the far South East (£150.5/t) and Yorkshire (£165/t).

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Feed wheat prices in the week to Wednesday (25 April) averaged £147.50/t ex-farm, similar to a week earlier and in a range from £136.50-£155/t.

The draw of the northern bioethanol plants ensures prices in their catchment are at the high end of the range.

Prospects for cereal prices look firm to the end of the season, say traders, although with plenty of imported wheat available, no price explosions are expected.

Despite sterling losing ground recently when inflation figures pointed to a later rate rise than previously expected, UK grain and grain imports are priced at roughly equal value, allowing imports to be viable.

Average feed v milling wheat prices (£/t)

  Feed wheat Milling wheat Milling premium
28 March 144 149.4 5.4
4 April 144.3 149.5 5.2
11 April 146 153.6 7.6
18 April 147.5 155.5 8
25 April 147.5 157.41 9.9
Source: Farmers Weekly Grain, oilseeds and pulses table – national averages calculated from regional price quotes

Currently, breadwheat imports are sourced mainly from Germany, France and Canada. The very reliable German trade became well-established as a result of the poor quality of the 2012 UK harvest.

“The challenge in future will be to reduce the volume of German milling wheat imports,” said Mark Smith, trading director at Saxon Agriculture, although another relatively small UK wheat crop (see ‘New crop outlook’ above) will mean the UK will almost certainly be a net wheat importer again next season. The EU’s MARS crop monitoring service puts 2018 UK wheat yields at 8.21t/ha compared with 8.16t/ha in 2017.

Both wheat and maize are being imported for bioethanol production.

Meanwhile UK wheat exports are lagging well behind year earlier levels, as are those from the EU as a whole.

EU soft wheat exports are at about 15.2m tonnes compared with 20.5m tonnes at the same time last year, while UK exports (from July 2017-end of February 2018) are at just 340,000t compared with 1.26m tonnes in the same period of last season.

Elsewhere, Russian exporters are having to chase hard for grain supplies to meet existing commitments as a fall in the rouble has pushed up prices, making producers hold grain back.

New crop outlook

With a similar area to that of 2017 and challenges to crop development, traders and analysts expect another relatively small wheat crop in 2018, at about 14.5m tonnes.

Provided both ethanol plants continue in operation, this will make for another tight wheat market.

Feed wheat is worth £135-£140/t at harvest, while barley is £121-£130/t ex-farm. The tight supply outlook means farmer selling has been lower than ever, say traders.

EU wheat production is forecast by analyst Strategie Grains at 141m tonnes compared with production of 141.7m tonnes last year. It puts the UK barley crop at 7.2m tonnes, the same as 2017’s actual output.

US weather and crop prospects are having a big influence on markets in the run-up to the new crop season. US winter wheat ratings are falling and spring plantings have stalled. Key hard red winter wheat-growing areas have seen far too little rain.

Futures markets have been volatile – falling on rain, forecast or actual, and rising when it fails to materialise or is less than hoped for. This will continue to affect UK prices, as will local demand which is becoming more regionalised as feed and milling plants consolidate.

“Although too early to sound the alarm bells, if the pace [of US planting] hasn’t substantially increased by the beginning of May some spring wheat and corn acreage could be lost to soya beans or left unplanted,” said Gleadell managing director David Sheppard.

This would provide some support to US markets, which would probably translate to EU markets.