United Kingdom
November 3, 2016
by Helen Plant, Senior Analyst, AHDB Market Intelligence
Wheat used by the GB milling industry (including starch and Bioethanol) over the first three months of the season (Jul – Sep), totaled 1.8Mt. This is 10% higher than the same period last year, according to latest data released by Defra this morning. Furthermore, this is the highest amount of wheat milled during the first quarter of the season, on records going back to 1997.
The strong pace can be primarily attributed to:
- Historically low specific weights (read more here), suggesting a lower flour extraction rate. This means more wheat needs to be milled to achieve the same level of flour output.
- Increased bioethanol demand following the re-opening of a major plant in July 2016.
Breaking it down, in July - September 2016 the GB milling industry used 1.545Mt (88%) of home grown wheat and 220Kt (22%) of imported wheat. This is the lowest amount of imported wheat used during the first quarter of the season since 2011. Lower imported usage reflects the greater availability of UK milling grades (read more here) and reduced competitiveness of imports (see below). Despite specific weight issues, this is driven by better overall quality pass rates and a higher proportion of the UK wheat area grown to nabim group 1 & 2 varieties.
In total, human and industrial usage of wheat is forecast to rise 8% this season to 7.92Mt (read more here). Subject to how animal feed animal develops, if the strong pace of usage by the milling sector persists, it could further tighten UK wheat supplies this season.
Imported wheat even less competitive
Between July and September 2016, imported bread wheat was much less competitive against UK prices than the same period last season. For example, UK ex-farm bread wheat was around £31/t less than imported German ‘A’ wheat (a similar spec) in September 2016, compared with £22/t in September 2015. The wider gap reflects the weakening in sterling against the euro, along with reduced quality and availability in mainland Europe.
However, the gap continued to widen into October (to around £36/t) as sterling weakened further. This makes imported wheat look even less competitive against UK supplies and suggests that the trend for import displacement seen so far is unlikely to change in the near future.
This morning though the pound has rallied to the highest levels since early October versus the euro with the news that Parliament is likely to have a significant role in the Brexit process. This serves to help the competitiveness of imported wheat, although this is only likely to be marginal given the currency movements since the 23 June vote result.
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