Next week is October, and we are still combining: I don’t mean just in Scotland, which is more normal. A month on and we are still no wiser about the size of the UK wheat harvest.
If you used a yield figure of 8.3 tonnes per hectare as some are, you get 14.8 million tonnes of wheat. If you used the alleged planted area times the 2016 yield of 7.88 tonnes per hectare, you would only have 14.27 million tonnes.
Perhaps that’s too low. But knowing there is lots of low bushel weight group two wheat out there, this crop does not feel a lot bigger than last year’s 14.38 million tonnes. But, let’s be optimistic: say it is 14.83 million tonnes and that still only leaves about 767,000 mt surplus more than last year, if we have got it.
Last month I said sterling was at the unusually high exchange rate of 93 pence to the euro and that it was due a correction. Amazingly I got that right. It’s fallen now to only 88 pence. It’s a shame the 93p didn’t last until the end of September, but still the average exchange rate has already been so much better than September 2016 that the basic payment scheme subsidy could be up £15 per hectare on last year’s.
Had the 93 pence hung around it would have been great for our exports – but have we got any surplus to ship? Certainly in the case of malting barley, I doubt if the UK will achieve more than 25% of its usual export target. Openfield have consistently been the largest UK exporter of malting barley. Many merchants have bought back all of their exports to avoid the risk of poor germination and high protein cargos.
That is not quite so simple for us to do. Since the last large southern maltings closed in 2000, we have developed supply chain partnerships with European maltsters who now rely on Openfield to provide them with malting barley from the south of England. Likewise, our local farmer members also expect us to continue to export their barley from southern/western ports so we have to find the balance between expectations and risk for stake holders.
If we only have half a million tonnes of exportable wheat surplus, like last year we won’t have to try too hard to dispose of it. The FOREX rate will fluctuate with Brexit moves. If sterling weakened against the euro, which it should, wheat wins both ways as our exports would be cheaper and the imports – especially of milling wheat from northern Europe which we are threatened with – become dearer!
The United States Department for Agriculture carries on in its usual way churning out a back drop of bearish figures. It’s forecasting a world year end stock – that’s June 2018 – of 265 million tonnes wheat, its the biggest ever. World maize at least is now more realistic, with year end stocks down 27 million tonnes.
This is because for the first time since 2010 we are expecting to use more maize in the world than we can produce. The current US maize harvest is behind the pace on average. There is talk of levy free Canadian maize coming into Europe. But for sure any weather issues with the American maize harvest will have a serious knock on effect on wheat. The US already have a smaller wheat crop, as does Australia.
I said last month that Russia is becoming the bread basket of the world. There are two problems with this: it’s doubtful if they have the logistical resource to export all the wheat they are selling – certainly before the Baltic freezes over. Next, if you are the cheapest supply in the world everyone wants to buy your wheat, and eventually you run out.
So for now I suggest we ignore the world. We have been in no man’s land but I think the UK is much closer to import than export price parity on wheat. OK feed wheat is off the top but there are some decent milling premiums available in the south. So concentrate on fixing those up. Feed wheat should appreciate more in the new year.
Feed barley is also still very good value with the big fall out of malting barley continuing and compounders up to maximum inclusion rate: you should keep selling it.