Wheat Supply and Demand
The news about the domestic marketplace for old crop (newly harvested) wheat is dominated by the announcement of bioethanol manufacturer Vivergo closing down, apparently for good (see accompanying article). The plant claimed to have taken over 1 million tonnes of domestic feed wheat, largely from the Yorkshire and Humberside area. The addition of this tonnage to the grain consumption figures will certainly have added considerable value to the local wheat price. However, with such sporadic operation, with closed periods, partial opening and apparently operating at less-than-full capacity, it might be less noticed than the headline figures suggest.
In addition, for every tonne of wheat supplied to the plant, about a third ended up as animal feed; the adjustment in the animal feed market might also reduce the impact to the combinable crop farmer. We believe the other large cereals-to-biofuel plant, Ensus, remains operational.
Since the early 1990’s the UK’s consumption of wheat has gradually risen from less than 11 million tonnes per year to a figure heading towards 16 million tonnes per year, a rise of nearly 50% of wheat use. Consumption continued to rise until it peaked in 2016/2017. It is possible that this will mark a turn in the overall volume of wheat processed in the UK. Without a corresponding rise in wheat production, the UK turned from being a net wheat exporter into a net importer.
The chart shows the production and consumption of wheat in the UK over quarter of a century. The orange line shows production fluctuating within a volatile 12-17mt range, and the blue columns the gradually rising and more predictable consumption figures. The 2018/2019 production figures assume a 14 million tonne production (based on 7.9 tonnes per hectare and 1.77 million hectares). The consumption forecast is the rolling 5-year average consumption less an estimated 600,000 tonnes of consumption by Vivergo. Despite this reduction in expected demand in the coming year, it still leaves the UK as a net importer of wheat.
UK Wheat Production and Consumption
Market Outlook
Full specification milling wheat is trading at approximately a £15 per tonne premium, relatively firm, largely on the weakness of the feed market, rather than strength of the milling prices. Feed demand for both wheat and barley are reported as light, which has resulted in lower prices. However, the cooling temperatures and recent sharp frosts might send some cattle indoors and curb grass growth, fueling demand, especially for barley, as wheat is primarily fed to non-ruminants that are housed all year.
The malting barley market is comfortable there is ample good quality barley available this year, and probably solely within the contracted tonnage. Those with uncontracted tonnages might think carefully about how long they should be kept for; if a reasonable price is bid, it might be prudent to sell to it.
There is a relatively large amount of mediocre oats this year, meaning the price for feed samples is not great (feed barley is trading close to wheat, but poor oats are lower), but those with good quality oat samples are achieving a reasonable milling price.
Bean harvest in the UK has been poor. Some consider the crop to be down by over a quarter, and some think 40%. This has its implications regarding supplying ongoing customers and export outlets the UK has cherished, but also, the availability of seed beans is a high concern for seed merchants. It might just be that one poor harvest could lead to a low drilled area for next year.
There are reports of considerably less oilseed rape being planted this year, and of that which has gone in, a large proportion is either not germinating because the ground has been too dry or has fallen victim to the flea beetle. Grubbing up and restarting has been common, especially in the Midlands areas.
Internationally, the USDA considers global wheat production is 25 million tonnes lower this year than last, but consumption will be up by 2 million tonnes. Stocks are expected to fall 13 million tonnes making the global marketplace that bit tighter. For coarse grains (feed grains), whilst the analysts think the production has increased, so will consumption. So also leaving a stock drawdown, in this case of almost 40 million tonnes to 185 million tonnes. This is bullish of course, but much of that information is probably already built into the market prices.