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UK wheat exports stumble, as supply squeeze bites

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 years.

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 around'

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.

Chicken feed

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 barley."

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%.

Barley struggles

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."

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