UK wheat exports, after making a rapid start to the season, look
like facing a sharp slowdown – potentially meaning price support – as
bioethanol production eats into thinner domestic supplies.
Defra, the UK farm ministry, in its first forecasts for
domestic wheat supply and demand in 2016-17, estimated domestic consumption of
the grain for food and industrial use at 7.89m tonnes – up more than 500,000
tonnes year on year.
The forecast rise in demand reflected expectations for use
by Ensus, one of the UK's two large bioethanol plants, with capacity for
consuming more than 1m tonnes of wheat a year.
"The key driver for [increased] human and industrial usage
of wheat in 2016-17 is an anticipated increase in usage by the bioethanol and
starch sector following the reopening of Ensus in July," said the AHDB ag bureau,
which works closely with Defra.
In the July-to-September period, the first three months of
2016-17, wheat use by processors including bioethanol and starch manufacturers had
risen by 9% year on year.
But, combined with the dent to supplies from lower UK
harvest this year, down more than 2.0m tonnes at 14.5m tonnes, industry's increased
appetite will leave merchants with less of the grain to sell.
Indeed, the wheat supply surplus for 2016-17 is, at 3.45m
tones, seen falling by 36% year on year.
And factoring out 1.6m tonnes in so-called pipeline supplies
– the minimum level that inventories are seen likely to fall to, including
supplies held in transit, and in stocks at farms, merchants and consumers – the
UK will have just 1.85m tonnes of wheat available for exports, Defra believe.
That represents a fall of 55% year on year.
Given the flying start that exports have made to the season
- with shipments for the July-to-September period averaging nearly 240,000
tonnes a month, the strongest early-season pace in six years – the data imply a
sharp slowdown ahead.
Defra said: "UK wheat exports from July to September
totalled 712,000 tonnes, which leaves a surplus of 1.139m tonnes for the rest
of the season," equivalent to less than 130,000 tonnes a month.
Slowing down already?
In fact, traders believe that the pace of UK exports has already
slowed, with traders at a major European commodities house saying that "it is
expected that 1m tonnes of wheat will be exported by the end of 2017".
A UK grain trader told Agrimoney.com that "we should have 1m
tonnes exported by Christmas near enough", implying a drop below 100,000 tonnes
a month in shipments for the October-to-December period.
That signals exports maintaining levels "which are nothing
compared with what we have seen" for the rest of the season.
'Difficult to see
The squeeze in shipments in turn suggests that prices will
need to remain elevated to quell export demand.
"It is difficult to see much downside to prices," the trader
said, while flagging that while prices had eased off in recent weeks, with
London's March 2017 wheat contract down more than 3% in the past month, this reflected
a recovery in sterling.
A stronger pound cuts the value, in local terms, of assets
traded internationally in other currencies, such as the dollar.
"There is not the need to compete strongly on price for exports.
"It is a very different situation to a year ago" when, after
the UK achieved back-to-back wheat harvests above 16m tonnes for the first
time, "we had 2m tonnes of wheat we did not know where it was going to go".
'Why wouldn't you feel a tad friendly?'
Earlier this week, Richard Whitlock, a grain market consultant and member of the AHDB board, said that "on the face of it, UK [wheat] values look too high compared with global prices.
"But we have already exported more than 60% of our wheat surplus, and there are more shipments in the pipeline, so why wouldn't you feel a tad friendly?"
However, the UK trader added that, with world wheat supplies
ample, and values on the benchmark Chicago exchange in retreat too, it was "difficult
to see much upside to UK wheat prices either without a surprise" hit to output
in a major producing country.
Chicago wheat futures for March stood down 1.7% at $3.96 a
bushel in late deals, earlier touching a contract low of $3.94 ¾ a bushel.