Saturday, October 19, 2019

High wheat stocks require canny marketing strategy

October 1, 2019 by  
Filed under Crops

UK wheat stocks are at their highest level for four years, confirm the latest figures from the Agriculture and Horticulture Development Board.

Wheat stocks for the year ending 2018/19 were up 11% from the previous season at 1.911m tonnes. With an estimated 15.9-16.2m tonne harvest for 2019/20, this has taken total wheat stocks to 17.8-18.1m tonnes – their highest since 2015/16.

AHDB analysts suggest end-season domestic consumption figures are notably lower year-on-year, at 14.7m – some 933,000t less than 2017/18. Reduced consumption is being driven by lower demand for animal feed and a drop in human and industrial consumption.

The fall in human and industrial consumption is partly due to reduced demand for wheat for bioethanol, following the closure of the Vivergo plant in Hull; and the use of maize at the Ensus bioethanol plant at Wilton on Teeside.

Lower demand

High stock levels will require canny marketing for the best prices. “Moving into the new season, there are indications that demand for wheat could remain subdued again this season further increasing the UK’s exportable surplus,” says AHDB Cereals analyst Aidan wright.

Higher grass growth over the summer and plentiful silage stocks means farmers with wheat in store could see lower demand for animal feed. Furthermore, there is a question over how much bioethanol demand will be seen this season.

Amid uncertain demand, potential tariff barriers in the event of a no-deal Brexit could limit prospects for exports and forcing prices lower. In the short term, Brexit news will continue to drive currency fluctuations and lead domestic wheat prices over the coming weeks.

AHDB senior analyst James Webster says talk of a no-deal Brexit in recent weeks has push sterling down from its four-month high – moving the wheat price higher than £135.50/t. “While the move lower is not massive, it has been enough to move the wheat price up,” he says.

Currency movements

The Brexit-based move lower in sterling has been compounded by the latest UK inflation data. Consumer Price Inflation (CPI) for August was reported at 1.7%, a 0.4% drop month-on-month – and the weakest price growth since December 2016.

Weak inflation data has the potential to drive a move lower in the value of sterling. While unlikely to result in a knee-jerk reaction, the latest fall in price growth sees inflation move further below the Bank of England target rate (2%).

There are a two tools available for the bank that can help to move inflation back up, a cut to interest rates, and an increase in quantitative easing, says Mr Webster. “We have already seen the EU employ these tactics in September to combat weak economic growth.”

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