Millers welcome decision to suspend set-aside rules
Published:  27 July, 2007

News that 3.8 million hectares of EU farmland will be allowed back into arable production next year has been given a cautious welcome by grain traders and millers.

The decision to suspend the set-aside rules that helped reduce Europe's grain mountain to 2.5 million tonnes this year came as prices for November-traded milling wheat hit £174/t on the Liverpool grain exchange, fuelling further flour price increases and making it impossible to insulate consumers from a retail hike this autumn.

The country's second largest miller ADM announced on Tuesday that it was to add £68.13/t to all flours from August 20, reflecting similar increases by rival miller Rank Hovis. Others are expected to follow suit.

According to the Home Grown Cereals Authority (HGCA), the premium for UK bread-making over feed wheat has rocketed by £25/t to £36/t since May. Question marks over both the quality and quantity of the UK harvest, due to get into full swing this week following almost two months of unremitting rain, mean prices are unlikely to stabilise soon.

"Very few millers have taken any wheat cover and they are all going to be pretty short from next week onwards," said one trader. "Prices for milling wheat are moving up dramatically. It's a very thin market and the millers are looking for cover, but the rest of the world's in the same state."

Predictions that cutting set-aside would bring as much as 17 million tonnes of grain back on to the market from next year were misplaced, he said. "The problem in the UK is that with the water damage being done to the soil structure, will it be dry enough to even plant the extra acreage? Meanwhile, every wheat-growing country has reduced its crop expectations and continues to do so on a daily basis."

Federation of Bakers director Gordon Polson said the net effect of reducing set aside to zero was likely to be negligible, since far-mers were not compelled to plant milling wheat.




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