Cheap wheat imports cap price

7 September 2001

Cheap wheat imports cap price

By Robert Harris

CHEAP wheat imports are likely to cap UK prices for some months to come, say some traders, but tight domestic supplies and lack of farmer selling will keep a firm base in the market.

Danish exports are already finding their way to UK extremities and cheap Black Sea grain is threatening to compete. The Home-Grown Cereals Authority says wheat yields in that region have risen by 23%, driving prices down.

While cheap imports may limit domestic price rises, at least the small UK crop – which most traders believe will end up at 11.5-12.5m tonnes – should minimise any downside, says Richard Whitlock of Banks Cargill.

"There is a lack of sellers, too. Farmers have barn space, fieldwork is keeping them busy and they are bullish about prices."

This suggests wheat values will stay in a tight band at least until the New Year, he adds. At about £78-£80/t, September wheat futures have changed little since July. The best move is to sell into the rises, he believes.

Gerald Mason, chief economist at the HGCA, says: "People are only beginning to grasp that just because we have a small harvest, the UK is not isolated from outside influences."

In a normal year, export values dictate the market. But this years small crop means the market is import-led. Although this has allowed domestic prices to rise about £10/t above export values, they are now approaching parity with imports.

Delivered prices for Oct-Dec are about £90/t into Scotland, a few £s/t cheaper into Liverpool and Yorks, says Mr Mason. German milling wheat also calculates into Liverpool at £107/t.

Currency remains critical this season, says Mr Mason. "Sterling losing ground against the k raises import prices much like it would have allowed export prices to rise in a normal year."

Exports, mainly of soft wheat, may start to feature in the south and east after Christmas, where there will be a surplus of grain, says Mr Whitlock. But prices should hold.

Due to wheat quality problems in traditional EU exporting countries, customers like Spain and Italy have switched to US soft red winter wheat. At current k:$ exchange rates, this attracts import duties, pricing SRW at 155% of the intervention price, or about k160/t (£99/t) delivered to port of destination. "This equates to the high £70s/t ex-farm in the UK – about where prices are now," says Mr Mason. &#42

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