As I am writing this before the final results of the US election are announced, I think it is best if I avoid the mention of current ex-farm prices this week!
Worldwide currencies have fluctuated all over the place over the last few days and most grain buyers appear to have gone into hiding, reluctant to over commit at this stage.
In the meantime, I thought I would use this opportunity to discuss the milling wheat market.
According to the latest data from DEFRA, wheat used by the UK milling industry throughout the first quarter of the current trading season (July-September) totalled 1.8 million tonnes. This is a 10% increase on the same period last season and is the highest amount of wheat milled during the first quarter of the season on records dating back to 1997.
Whilst this may seem like positive news for milling wheat growers, it should be reminded that this figure includes wheat used for both starch and bioethanol production and will account for the additional demand created by the re-opening of Ensus earlier this summer.
However, a significant proportion of this increase should account for the flour production industry – the lower specific weights we have seen produced this year will have a lower flour extraction rate, hence the need for more wheat to be milled to achieve the same level of flour output.
Furthermore, it is interesting to note that although the UK milling industry is using 10% more wheat, the country as a whole is suspected to be importing less.
Between July and September this year, imported bread making quality wheat became increasingly uncompetitive against UK ex-farm values as the value of sterling declined.
Back in September 2015, German ‘A’ Grade milling wheat was a £20/T premium to UK milling wheat ex the farm. As this grade of wheat is typically a minimum of 14% protein, at the time this seemed like a reasonable premium.
Fast forward a year into September 2016 and this grade of wheat is now valued at a £35/T premium to UK milling wheat ex the farm.
Although this widening gap between the cost of UK ex-farm wheat and imported milling wheat is predominantly due to currency, it also reflects the reduced quality and thus the reduced availability of this grade of wheat throughout Europe.
It will be interesting to see the final import figures for the first quarter of the current trading season which are due for release next month by HMR&C.
If the above is to be believed and the UK really is using more but importing less, perhaps we could see an increase in milling premiums as we head into the New Year?