£200.00/T?

The latest estimates from the AHDB have forecast this season’s wheat acreage at 1.5 million hectares. If realised, this will be the smallest UK area for almost forty years, since 1981. It is also a 17% decline on the area drilled last season for the bumper 2019 harvest.

The above figure accounts for 287,000 hectares of spring wheat, the majority of which is yet to be drilled as the poor weather continues. With such a heavy reliance on a successful spring, it is difficult to estimate total UK wheat production this harvest – we could be anywhere from 9 to 12.5 million tonnes depending on the percentage of winter losses, uncertain spring weather and the viability of later drilled crops. In addition to this, we could be looking at an estimated 3 million tonne carryover of wheat next season. This therefore increases the wheat figure to 12 – 15.5 million tonnes.

However, a smaller UK wheat crop does not guarantee higher prices. Indeed, general uncertainty and a presumably lower supply could hold prices firm. But there are other factors at play here.

As Coronavirus continues to spread outside of China and into mainland Europe, according to the financial times, Global stocks had their worst trading day in two years last week, meaning the virus is no longer “solely an Asian issue” economically. UK stocks specifically had their worst day for five years as the FTSE 100 dropped 3.3 percent and various trading platforms fell under pressure.

Additionally, the value of sterling is stronger than it was at the end of last year and despite the day to day fluctuations, it is currently valued somewhere in the region of 1.20 against the euro. As the pound strengthens, comparative wheat imports appear cheaper and domestic prices must therefore be valued accordingly.

Russian agricultural production has surged by 20% over the past six years and the country has managed to capture more than half of the global wheat market in recent years due to bumper harvests and attractive pricing, becoming the world’s biggest exporter of grain. Preliminary projections for harvest 2020 show that total grain production will be the country’s second largest on record following an unusually mild and “extremely favourable” season.

Neighbouring Ukraine are also on track for an excellent harvest this year with some southern crops said to be in a “near perfect” condition. Following a record grain crop of 75 million tonnes last year, the 2020 crop is expected to come in somewhere around the 70 million tonne mark.

Looking ahead, Harvest 2020 may seem like a long way off, particularly given the amount of stood water and fallow land. But current values of £160.00/T ex-farm for January 2021 should be worth some consideration; yes, we could be looking at a poor domestic wheat crop, but I’m afraid the Russian’s firmly intend on bursting the farmers “£200.00/t bubble”.

It may come as a harsh reality, particularly for those of you who have battled to establish one of the poorest crops seen in a generation, but ultimately, UK wheat will be valued in accordance with an imported equivalent, regardless of domestic availability.