UK has an exportable surplus

Since my last article, DEFRA has announced a UK wheat crop of about 14 million tonnes. Even though the market had been “trading that figure” already, it did not prevent the UK wheat futures for November hitting another ‘new high’ of £216.

It is interesting to note that about one year ago its low contract point was £145. The then talk of the UK having ‘wall to wall’ wheat from the 2021 harvest meant many farmers bought into that view by selling forward at £150 for this harvest. Who would have thought that, a year on and with five million more tonnes of UK wheat, we would have spot prices much higher than this time last year? When you think that, unlike last year, the UK does have an exportable surplus, the logic of this situation is more difficult to fathom.

But we have begun with a surplus of feed wheat at least, because we have been exporting it for the past four months, with estimates of up to 250,000 metric tonnes already shipped. This may not include the wheat we have been shipping to Northern Ireland from the west coast but, whether in the official export figures or not, it has definitely left these shores and won’t be coming back.

But, I hear you ask: “How can wheat in southern England costing £200-plus ex farm, with big haulage, elevation and sea freight costs, be competitive anywhere?” That’s a good question as usually there are other origins who cannot wait to undercut us and maybe they will yet. For now, the demand is real enough and even better, as I presaged last month, feed barley is being carried up with feed wheat. This means that record ex farm prices are being paid spot, so if selling feed wheat and barley in November and December is part of your strategy, now is the time to get on with it.

Regular readers will know that my view is that the January to June positions will yield the highest prices for feed and milling wheat and that £200-plus ex farm for feed should have always been on. Because you can make it now, it does not mean that the later months won’t trade at even higher levels. Simple maths confirms that with a 14 million tonne wheat crop, normal milling imports and compound demand, the only uncertain factor is the demand for ethanol production.

Most assume 1.3 million tonnes will be used. If the second factory is on stream from 1 January 2022, that could rise to 2.2 million tonnes. Why wouldn’t that happen? Well, with wheat at £200 plus ex farm, is it too expensive to use? One plant can switch from wheat to maize, the other can only use wheat. But with maize currently at £250 ex store it does not calculate; E10 is flowing at the pumps.

The government’s recent subsidy of CO2 production leads me to believe they would do the same again if this valuable source of carbon dioxide was threatened by the high price of wheat. Assuming I’m correct about this, then as well as importing milling wheat, the UK will be bringing in feed wheat. If that happens the old chestnut about the difference between export and import parity will be wheeled out. That is £20 per tonne, so in theory feed wheat could increase to £220 ex farm in the new year between January and June.

So, for the long holders there may be even more fun to come. As I have indicated, barley could continue to be dragged up by wheat. If it’s trading at, say, £10 discount, you have to be selling it. Don’t forget the UK does have a 1.2 to 1.5 million tonnes barley surplus.

The next word of warning is about malting barley. Having reached premiums of £50 per tonne-plus for January or February, the biggest European maltster has just purchased a large cargo of Australian malting barley for the new year, so there’s now a ceiling to malting barley. That really should be sold now, but for January or February, as pre-Christmas logistics will make it impossible to execute new business.

So, keep cashing in spot feed wheat and barley and sell malting barley. Hold some wheat for the January to June rise, but as you do, release some new year feed barley at a differential of £10 to wheat. I said months ago that the premium for proper group one milling should be similar to malting barley, so if you’re lucky enough to have milling wheat when it is, sell some.

Last of all, oilseed rape. A recent trade with the oil bonus was close to £600 per tonne. While some farmers I know would still want “another quid” even at that price, this bit of icing on the cake is probably worth taking.

The UK and the EU have to import an awful lot, but it will come from somewhere. This year has the look of one during which, as long as you still have some tonnage to play in the wheat, barley, oilseed ‘game’ and even if you miss the remaining peaks in the market, you will still do very well. Remember, from a pricing view it’s sometimes better to sell at ten minutes to noon rather than leave it until one minute past!