UK growers should be prepared for a drop in wheat prices
which HSBC cautioned could be in for a slump of some 30%, despite continuing
setbacks in even getting winter crop sown.
The bank, a major lender to UK farmers, in a report
outlining 2013 agriculture forecasts, pegged the average UK wheat price next
year at £165 a tonne – a level not seen since March on London futures.
London's current spot contract, January, was trading at
£227.00 a tonne on Thursday, with the average at £222 a tonne for the five 2013
However, while rain may continue to be plaguing UK farmers -
prompting them to cut wheat sowing hopes to the lowest in more than a decade,
and leaving 30% of winter crop area still unplanted – the market was vulnerable
to the potential for a better world crop, Allan Wilkinson, HSBC Bank's head of
'Governed by world events'
"The UK crop in the context of the world crop is not is not
important," Mr Wilkinson told Agrimoney.com.
"We are governed by world events. We do not shape world
events," in the cereals sector.
Furthermore, while £165 a tonne was lower than headline
prices, it was "not that far short" of values farmers were currently receiving for
2012 crop, once penalties for its low quality were factored in.
The comments follow a core autumn sowing period which, for most
of the European Union and Black Sea area has been "favourable", European
Commission researchers said earlier this week, flagging the UK, France and
parts of Russia as exceptions.
Even then, Arkady Dvorkovich, the Russian deputy prime
minister, on Thursday said that the Russian winter grains data pointed to a "good
harvest" in 2013.
One major setbacks to wheat hopes is in the US, where the crop
is entering dormancy in its worst condition on records going back to the 1980s.
Nonetheless, the International Grains Council on Thursday forecast world wheat area reaching harvest in 2013 rising to its highest in 15 years.
'Driven by global
Mr Wilkinson's comments were echoed by Jack Watts at the UK's
HGCA crop bureau, who said that, despite the poor domestic conditions, "it is
important that farmers do not get complacent towards current high prices.
"Markets are driven by global forces largely irrespective of
what is happening in the UK."
Mr Watts earlier this month flagged the potential for options
as a means for producers worried that they may be unable to get crop into the
ground to lock-in historically high prices for 2013 crop.
Traders at a major European commodities house flagged the potential
for prices to drop earlier next year, if UK farmers hold out too long selling
2012 crop, at a time of surging imports.
The traders asked: "Does this then leave us with a lump of
wheat to ship come April-June in the face of new crop," ie with supplies from
the 2013 harvest close to coming onstream?
Given the low quality of this year's wheat currently in
bins, "the market could drop at least E20 a tonne to find demand, given today's
Mr Wilkinson's comments came as the bank launched a report
projecting farm returns for 2013 in a range of markets, showing wheat farmers
on potentially for a net margin of £45.00 a tonne, factoring in variable costs
of £51.20 a tonne, and overheads of £68.80 a tonne.
For milling wheat, the margin for a good-yielding crop, of
some 9.5 tonnes per hectare, was pegged at £53.20 a tonne, including a £20-a-tonne
For spring barley - in which farmers look set to plant their
biggest area in living memory, seed allowing – the net margin was put at £53.00
a tonne, factoring in a £25.00 a tonne malting premium.
'Supply chains have
to be viable'
In the livestock sector, a producer with a 210-cow farm can
expect a surplus of some £38,000 in England, including support payments, and factoring
in a milk price of 27.0p, below the 29.06p received in January, according to
data from the DairyCo dairy bureau.
"We are mindful of the global market, and that supply chains
have to be viable," Mr Wilkinson said, at the end of a year which has seen two
UK processors merged into foreign rivals.
Mixed lowland cattle and sheep farmers were seen offering a
return of at best £11,352, in Wales, with store cattle operations, and hill
farms, seen running at a loss, before support payments.