UK wheat exports fell off dramatically in what appeared a
sign of supply tightness, spurred also by surprisingly strong feed use of the
grain, which has helped keep prices relatively firm.
The UK, the European Union's third-ranked wheat growing
country, shipped 145,437 tonnes of wheat in October, the fourth month of the
2016-17 marketing year, customs data showed.
The figure represented a marked slowdown after a strong
start to the marketing year, with shipments in the July-to-September period, at
a total of more than 713,000 tonnes, setting off at their fastest pace in six
October's exports were 42% below those a month before,
besides being 31% down year on year.
And the October decline might prove even bigger, depending
on how a data anomaly is resolved, with the month's figure including a shipment
of 25,435 tonnes to Italy which appears more than twice the total indicated by rolling
customs data, a person familiar with the situation told Agrimoney.com.
'Not enough wheat
The decline in exports tallies with ideas, as
Agrimoney.com has reported, that volumes will show a sharp slowdown,
reflecting the dent to supplies from a weaker harvest this year.
Indeed, traders have pencilled in 2016-17 shipments having
reached some 1.0m tonnes by the close of this month, the half way stage for the
marketing year, implying the monthly pace slowing further to about 70,000
tonnes in November and December.
"There just isn't enough wheat around to support shipments
at the pace they have been going at," a UK trader told Agrimoney.com.
Supplies have been further squeezed by unexpectedly strong
use of wheat in UK livestock feed, with official data showing demand from feed
mills rising by 4.4% year on year in the July-to-September period.
UK farm ministry Defra has forecast growth of 1.8% over
2016-17 as a whole.
The strong pace of demand, which contrasts with falls of
more 10% in use of both barley and corn in feed, comes despite an unusually
strong premium of wheat over barley, although it tallies with ideas of growing
demand from poultry producers.
"In general, wheat is the main cereal used in poultry feed
production," the AHDB bureau said.
"With this in mind the increase in poultry feed usage, and
therefore wheat, has somewhat outweighed the price competitiveness of feed
Wheat vs barley
The AHDB said that for barley to regain some of this demand,
"it is likely to have to discount even further from feed wheat prices," having
already seen the gap widen to more than £20 a tonne, from some £8 a tonne a
year ago, boosted by relative firmness in UK wheat prices.
London wheat futures for March stood at £136.75 a tonne on
Tuesday, trading roughly flat over the past two months.
By contrast, Chicago wheat futures for March have fallen by
3.6% over the same period.
The outperformance of London futures comes despite some
recovery in sterling over the same period – indeed, in dollar terms, London
futures have risen by 4.0%.
Increased activity by the UK's bioethanol plants, which
prefer wheat to barley, has also supported this premium, with barley also finding
export demand relatively hard to come by.
Shipments for the first four months of 2016-17, at 430,000
tonnes, are down 15.2% year on year.
"UK barley exports in the season to October have been at
their lowest level in four years, driven by almost no shipments to non-EU
countries by that point," AHDB analyst Arthur Marshall said.
"Alongside evidence yesterday that barley is struggling to
find British compound feed demand, feed barley may have to continue to price
competitively against wheat in order to find [export] demand."