UK wheat price 'to drop to £165 a tonne' - HSBC
By - Published 29/11/2012

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 contracts.

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 agriculture, said.

'Governed by world events'

"The UK crop in the context of the world crop is not is not important," Mr Wilkinson told

"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 forces'

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 price parities".

Wheat returns

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 milling premium.

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.

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