The plunging value of sterling against the dollar and the euro, combined with a decline in UK wheat quality, may put a stop to the recent falls in flour prices.
The pound has fallen in value by more than 20% compared to the dollar in the past month, from around $2 to $1.54. Against the euro, sterling has suffered similarly heavy losses, falling in value from E1.43 at the beginning of the year to around E1.20 last week.
According to Alex Waugh, director-general of Nabim, the falls could push up wheat prices. "Imported bread wheat, which accounts for around 20% of the UK market, is priced in US dollars, while UK wheat prices are underpinned by the euro because of the Common Agricultural Policy," he said. "At the same time, British wheat quality has suffered because of heavy summer rain."
The HGCA said analysis of British wheat had shown low protein levels, while wheat harvested later in the season had high moisture content and was of variable quality. HGCA crop marketing director Alastair Dickie said the economic crisis had undermined the price of milling wheat, which had fallen from a high of £200 a tonne in March to £135-£140 a tonne this month.
Both Nabim and the HGCA expect currency turmoil to be more of a challenge than EU proposals to reintroduce import duties on cereals, to safeguard European farmers from falling grain prices. The duties were suspended last December in response to record prices and tight supply. The EU hopes raising import duties to keep the price above E155 a tonne will help ensure European farmers can earn a reasonable living.