Falling wheat markets put pressure on grower margins
© Tim Scrivener Arable farmers are feeling the pinch as lower returns for wheat and barley continue to erode profit margins on farm.
On the futures market, UK feed wheat hit a new low of £176/t for the May contract on 30 January, as prices continued to tumble.
Spot prices for feed wheat have fallen by 7% since the start of the year, averaging £167.2/t on 26 January, while feed barley averaged £145.7/t.
See also: Wheat markets fall to five-month low with prices near £170/t
Meanwhile, milling wheat averaged £235.6/t with a £68/t premium over feed wheat.
Wheat cost of production
With farmgate prices under pressure, the cost of production for different wheat specifications has been brought into the spotlight, as farm businesses weigh up margins and returns for the year ahead.
Farm business data and analytics company Yagro has broken down the variable costs of production for each group based on harvest 2023.
It found that variable costs of production for winter wheat in 2023 had increased significantly overall compared with the previous year, largely driven by an increase in fertiliser prices.
The report also found that Group 1 milling wheat varieties had the highest variable input costs, while Group 3 and 4 tended to be the lowest.
Gabby Hart of Yagro Analytics said: “It’s little surprise Group 1 incurs the highest costs of production, with the extra emphasis on quality leading to higher fertiliser spending.
“We saw £460.20/ha and £50.58/t costs for Group 1 fertiliser, compared with £367.60/ha and £40.95/t costs for Group 2.
“In addition to fertiliser, fungicide costs are also higher for Group 1s – £147.57/ha and £16.25/t, compared with £110.76/ha and £13.02/t for Group 3.”
Outlook
Wheat remains slightly bearish in the short term, according to the AHDB, with European markets still facing competition from Black Sea grain.
Megan Hesketh, senior analyst at AHDB, said: “Going forward, the prospect of tighter global and domestic wheat supplies could provide some support to markets in the short term, and to wheat in relation to global maize prices.
But the continued competitiveness of Black Sea supplies on the global market remains a key bearish factor overall, influencing physical markets.
“For new-crop, a growing premium of November 2024 prices over May 2024 contract shows the UK positioning for a tighter domestic wheat supply, influencing how we domestically price to the Continent.”