The squeeze on UK wheat supplies following the worst harvest in nearly 40 years has been eased, a little, by a shift in ethanol and feed demand to rival grains, encouraged by unusually large price spreads.
Defra, the UK farm ministry, narrowed by 340,000 tonnes its forecast for the UK’s wheat production deficit this season, with downgrades to consumption expectations more than offsetting the – further – downgrade issued in December, to 9.67m tonnes, in the estimate for last year’s harvest.
The forecast for human and industrial use of UK wheat in 2020-21, as ends in June, was trimmed by 95,000 tonnes to 6.44m tonnes, taking it 1.0m tonnes below the five-year average.
The estimate factored in a “drop in usage by the bioethanol industry”, seen switching for feed feedstock from wheat “due to its relative price compared with maize”, said the AHDB bureau, which was consulted by Defra in drawing up the figures.
‘Lowest on data going back 20 years’
For feed use, the forecast for wheat demand was cut by 711,000 tonnes to 5.92m tonnes – taking the figure more than 1.4m tonnes below average levels.
Given a 2020 UK harvest which was, at 9.66m tonnes, the lowest since the 1980s, and its impact in buoying “the relative price of wheat this season, it is assumed that producers will sell more wheat rather than feeding it on farm to livestock,” the bureau said.
“As a result of the increased premium of wheat over other feed grains, we have seen a large reduction in the consumption of wheat.”
The forecast for UK wheat consumption overall was downgraded by 814,000 tonnes to 12.62m tonnes, “the lowest level on records going back 20 years”, and some 2.5m tonnes below average rates.
Even so, and factoring in imports expected to double year on year to 2.10m tonnes, “tight availably has meant that this is the tightest balance in over 20 years”.
Wheat vs barley vs corn
For corn, by contrast, the forecast for UK consumption this season was lifted by 273,000 tonnes to 2.59m tonnes, taking it more than 600,000 tonnes above the five-year average level, with the grain seen picking up demand in livestock rations too.
“While global maize prices have risen since the start of season, which has made it less competitive into the UK, it is still featuring in the ration at relatively high levels,” said the AHDB.
For barley, the forecast for feed use was upgraded by 423,000 tonnes to 5.32m tonnes, nearly 1.3m tonnes above typical levels, and up 28% year on year.
The bureau, noting official data showing barley use in rations up 40% in the first half of the season, said that “the large discount of barley to feed wheat has prompted increased usage in rations.
“Further, it is anticipated that the discount has driven further increases in the proportion of barley being fed on farm this season.”
Indeed, the bureau noted that the “tight picture for UK wheat this season” had early last month driven feed wheat prices ex-farm to a premium of feed barley as high as £53.50 per tonne ex-farm.
While the premium has eased back since, it remains historically high. In North Humberside in northern England, for which comparable data are available, the price for next-month delivery eased by £6.50 per tonne to £44.00 per tonne between January 8 and February 18.
“The reduction in the deficit is a sign of market forces acting to clear the deficit in wheat,” the bureau said.
In London, wheat futures for May stood up 1.0% at £207.00 a tonne in lunchtime deals, returning closer to last month’s contract high of £217.00 a tonne.
Despite the switch in demand already seen, and imports which reached 1.42m tonnes in the first half the season, many commentators see price remaining supported.
“A further 1m tonnes [in imports] is expected to be needed during the second half of the marketing season to make up for harvest 2020’s dramatic shortfall,” Jonathan Lane, head of grain trading at ADM Agriculture, said on Friday.
“This means the UK will have to remain at import parity.”