Dull weather in the UK coupled with hot weather in the US has seen the delivered price of UK bread wheat rocket over the past month.
A lack of sunshine, needed for efficient crop development, in addition to a huge amount of wet weather this summer has meant that the UK harvest looks set to be delayed. Meanwhile, uncertainty over the maize crop quality and yield in the US, following a prolonged period of drought, has driven its price upwards, pushing wheat with it.
According to the latest market report by the HGCA, as of 5 July, the forward price for a delivered tonne of wheat in the north west, in November 2012, stood at £225 per tonne (p/t). Jack Watts, senior analyst at AHDB/HGCA, said this showed a huge increase in the past month, with the delivered November figure in June at £188.50 p/t. "This time last year the comparable forward price was £203 p/t," said Watts, "so we’re getting towards some of the historical highs we’ve seen previously."
Alex Waugh, director general, National Association of British and Irish Millers, said fears about lower maize yields in the US had prompted concerns that people will switch out of maize in favour of wheat, which is in turn driving the wheat price upwards. "The weather story in the UK is the exact opposite too much water. There may be an impact on quality due to disease, which could result in higher premiums for the better-quality wheat we would want to use for bakery." He said, at the moment, the situation was not looking great, but that a good spell of sunshine would help enormously. "We’re not beyond the point of no return, but we’re nearing it."
Watts reiterated that there was a big question mark over the timing of the harvest. "There are also concerns over the crop yields in the UK, but we won’t know the full impact of this until the harvest has come in. It would be too early to write off the crop, but we’re not expecting to see the good quality we had last year," he said. "There is still a long way to go, and the market is very anxious about that, which is what has been fuelling the price increase in the UK."
Elsewhere, floods in southern Russia have damaged some of the export infrastructure, said Watts, which, combined with lower expected production, looks likely to lower the level of Russian exports this year.
Comment: Gary Sharkey, head of wheat procurement, Rank Hovis
Over the past four weeks, UK wheat prices have risen to circa £30 per tonne. World wheat production (US Department of Agriculture June 2012 forecast) was estimated to fall by 22 million tonnes (mt) or 3% year-on-year as last year’s excellent growing conditions were not repeated. Wheat crops in the former Soviet Union, Eastern Europe and even parts of East Germany/France suffered severe frost damage and fields were mainly re-seeded with other, more profitable crops. World demand was also projected to fall 14mt (2%) as demand switched to cheaper feed grains, such as corn (maize).
During June, temperatures in the main US corn-growing states soared to 38-40C for prolonged periods, forcing many renowned market analysts to reduce previous output forecasts. As of 11 July, the USDA predicts world corn production to fall 45mt (5%) from its June report.
By contrast, the UK, has seen the wettest April-June since records began in 1910 and production is forecast to rise. However, quality is far from secure, as excessive rainfall and moderate temperatures are known to promote an increase in disease levels. As a result, bread-making wheat prices are at their highest price since April 2011 and, over the next six weeks, the weather will be key in determining the bread-making premium for the next 12 months.