Be warned: a poor quality European harvest spells bad news for grain prices here. Gilly Johnson finds out why.
BRITISH growers werent the only ones to suffer a poor harvest. Its been a tough season elsewhere in Europe too.
The EUs output of coarse grains – which includes sorghum, rye, maize and triticale – is down 1% to just over 200m tonnes, despite an increased area planted, according to figures from COCERAL, the European agricultural trade body.
Bad weather is blamed. A wet wheat harvest and the cold June upset cereal production in France, just as it did in the UK. Its not just a yield problem; quality is also badly affected – though the true extent of the damage is unclear. Trade rumours that 44% of French wheat would not meet intervention quality criteria are being hotly denied by the French authorities.
Despite the denials, specific weights do appear to be well down in northern France. In normal conditions French wheat would easily pass the 76kg/hl export standard; thats not the case this harvest. And in the south, hagbergs have been hit by a wet summer. Many samples are coming in at 150 hagberg and below, including mainstream French milling wheats such as Sideral and Recital.
France is Europes largest wheat producer and exporter, growing over a third of the Communitys total tonnage. If much of this wheat is not up to milling or intervention specifications, then it must be downgraded to feed – and it will then compete with UK wheat for price-sensitive export outlets.
Its bad news for UK exporters. "Were worried," says Mark Hughes, export director with Allied Grain. "The lower quality French wheat will be in direct competition with us for customers in Europe."
France, along with the rest of Europe, also has a huge maize harvest, thanks to the same wet summer which damaged wheat quality. A large supply of cheap maize is going to put further pressure on European feed wheat prices, as it can replace feed grain for importing nations such as Spain.
UK export efforts are also hampered by the strength of sterling which continues to give foreign grain the competitive benefit of a lower price. So taking all these factors into account, its not surprising that UK wheat exports have got off to a bad start.
"October has been very difficult for exports," says Mr Hughes. "This time last year we had shipped 1.5m tonnes – but to the end of October the current total looks like being nearer 850,000t."
To make matters worse, new players have made a surprise appearance on the export scene. Romania and Hungary have exported cheap wheat to Mediterranean countries, and Turkey is likely to supply Saudi Arabia with barley.
The loss of some of the Saudi market is a major blow to short term export hopes. Last season Saudi bought 450,000t of UK barley. "This season we will be seeing European barley having to go into intervention in November," predicts Mr Hughes.
So far Allied Grain wheat exports, mainly through the port of Tilbury, have been maintained through aggressive marketing. Allied Grain predicts that Spain will be the largest buyer of UK wheat this year taking a minimum of 0.8m tonnes. Specific weight specifications will range from 68-76kg/hl, suggests Mr Hughes.
"Spanish buyers wont pay any premium for UK wheat unless they absolutely have to. By far the vast majority of exports are done on the basis of a standard export spec – kiloweight and price are what matters."
Problems with the poor quality of the first UK wheat shipments to Italy this season has led buyers to switch to grain from Scandinavia and Hungary instead. Last year Italy bought about 520,000t – prospects this season are uncertain.
For wheat, the UKs exportable surplus this year is about 1m tonne lower than last season. For barley, its higher, at about 2.4m tonnes.
"It is a problem to see where our grain will end up this year," says Mr Hughes. "For barley, there is always intervention. This isnt an option for our wheat."
A lack of buyers is one difficulty. A shortage of sellers is the other. Growers are holding off from selling grain in the hope that the market will rally. This has created an artificially high domestic market, says Mr Hughes. Which has meant UK grain has not been competitive on volume export markets. So foreign grain has filled the early orders instead.
Traders are often accused of talking the market down. But Mr Hughes denies being overly bearish. "Prospects really are gloomy," he says. "Last year third country buyers saved the day – we had the quality needed, and the UK was price competitive. Thats not the case now – were just too expensive with sterling at current levels."
"The best hope for those growers with wheat in store is that sterling weakens – otherwise grain prices will have to fall to give our exports the required boost."