Rely on wheat types suited to range of uses
By Robert Harris
CEREAL growers face an era of low but volatile world prices. To maximise profits, they are advised to shift from a feed/premium wheat mentality and grow more reliable varieties which suit a range of markets.
With world prices unlikely to rise above £85/t in the future, and a big crop forecast this season, managing risk will be vital, says Dalgetys Gary Hutchings.
Growers expecting a weaker £ to push prices up will be disappointed. "If currency had been the only factor affecting cereal prices in the past 12 months, then wheat should be worth about £95/t. Its actually worth £20 less than that."
Quality and competitiveness are the two key fundamentals which are often overlooked, he maintains.
Poor quality last harvest cut prices by £4-5/t. More importantly, French wheat values fell £13-14/t this season, due to low specific weights, lack of intervention support and world market trends.
Any recovery in the UK price is likely to be small, with a potential 16.6m tonne UK crop set to produce a 5m tonne exportable surplus. That may face limited demand with world output prospects also bullish.
Any opportunities which do occur need to be grabbed, says Mr Hutchings. World prices are likely to be very volatile, as wheat stocks are at their lowest for 20 years, at just 15% of annual consumption. Any weather scares or problems could create opportunities.
Working against that is increasing competition from old Eastern Bloc countries. They produced almost 20m tonnes more wheat this year, and some was exported at prices as low as $70/t (£42/t). "There is a risk that these could be taken as benchmark figures."
Although world wheat consumption is forecast to rise, especially in Asia (by over 20m tonnes by 2005), sustained weakening of currencies could slow growth. It has already cut world cereal prices by 25% this season, he adds.
Growing varieties which suit a range of markets, including intervention, will help.
Stephen Smith, managing director of plant breeder New Farm Crops, maintains this seasons impending oversupply of so-called "added value" wheats – class 2 hard types like Rialto and Charger – could leave many growers without a premium. To counter that, they should switch to "maximum market access" wheats next autumn.
"Traditional market advice has been to split wheat area equally between hard milling class 1 and class 2 wheats, soft milling class 3s, and hard feed class 4s," says Mr Smith. But better quality wheats lock growers into higher inputs to achieve premiums, which may not be realised due to poor weather. And straight feed wheats generally achieve a base price at best, he adds.
Depending on area, Mr Smith suggests a better mix would be 12% premium bread wheats, like Hereward and Abbot, and 88% MMAs, split between hard and soft types.
Hard varieties include the group 2 wheats, though under this system they may not be pushed for bread-making, and NFCs own Reaper. Soft wheats include Riband and Consort. All are suitable for feed and human consumption markets, both at home and abroad, and the hard wheats meet intervention standards too, says Mr Smith.
Even if growers insist on retaining 10% of feed wheats, likely given the high yields of newer types like Savannah, Mr Smith reckons each 100ha (247 acres) planted with the new varietal split should add £1324 to gross output, a 2% increase, where yields hit between 9-10t/ha (3.6-4t/acre).
A variety rethink this autumn may help to maximise profits.