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UK wheat harvest beats forecasts, easing ideas of supply squeeze

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The UK wheat harvest rebounded more than had been expected this year, official data showed, easing ideas of a squeeze on supplies which spurred calculations of the UK remaining a net importer of the grain.

The UK, the European Union's third-ranked wheat grower, raised wheat production by 5.4% this year to 15.16m tonnes, farm ministry Defra said.

The estimate, drawn from a farmer survey, came in above market expectations broadly centred on a range of 14.5m-15.0m tonnes, according to sources.

Industry group Coceral pegged the crop at 14.75m tonnes, while the International Grains Council has estimated the harvest at 13.9m tonnes.

'Above-average yields'

The Defra figure implies a bigger rise in yield than had been expected, given that UK wheat sowings for the latest harvest are believed down by some 3%.

Harvest reports from the AHDB had estimated the British wheat harvest, which comprises the vast majority of UK output overall, at 7.9-8.1 tonnes per hectare - in line with a five-year average of 7.9 tonnes per hectare, which was also the 2016 result.

Indeed, the Defra harvest estimate points "to above-average UK yields", said AHDB senior analyst Helen Plant.

Squeeze eased

Ms Plant added that the bigger-than-expected harvest production could also "help reduce the impact" on UK wheat supplies of lower carry-in stocks, which officials have estimated at 1.77m tonnes as of the start of 2017-18, a three-year low, and below an average of some 2.1m tonnes.

Indeed, with UK domestic demand for wheat being boosted by use by ethanol plants, many commentators have forecast the UK, one a sizeable wheat exporter, again being a net importer of the grain in 2017-18.

However, the impact on prices was limited, with London wheat futures for November easing by 0.5% to £143.00 a tonne – albeit a decline which took the contract back below its 100-day moving average, and came despite a 0.8% drop in the pound against the dollar, so boosting the competitiveness of sterling-denominated exports.

'Farmers are not selling'

A UK-based trader told that the reaction to the data had been muted by the fact that the country was "not competing for exports anyway" at the moment.

"Farmers are not selling," he said, adding that "the market still feels tight - it feels tighter than you would expect with a 15.2m-tonne crop".

A bigger impact may be felt later on in the season, if market power turns, undermined perhaps by demand for imported corn, which is being incentivised by current price differentials.

Paris maize futures are priced at their biggest discount to London wheat futures since December 2015, the AHDB said earlier this week.

"It is in the last two quarters of the marketing year when we may feel the extra supplies," depending on the extent of exports that the UK needs to capture.

By Mike Verdin

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