Growing premium for new-crop over current low wheat prices
© Tim Scrivener A £19/t premium has emerged between the May and November wheat contracts as large volumes of Black Sea exports affect UK prices in the short term.
UK spot feed wheat prices have tumbled to near £155/t, with wheat markets forecast to remain bearish for the next few months, based on the current market conditions.
Traders say that even at this low price point, the UK is still not able to compete in the global export market and could, therefore, reach new record low export volumes for the crop year.
See also: Falling wheat markets put pressure on grower margins
There is, however, a growing premium for new-crop over old-crop, partially due to lower production estimates for this year’s harvest.
The UK feed wheat futures May 2024 contract closed at £168.25/t on 13 February, but the November 2024 contract closed almost £20/t higher at £187.25/t.
Global drivers
Supplies from Russia and Ukraine continue to compete with the European market at a lower price point, despite blockades at borders by Polish farmers.
Andrey Sizov, head of market analysis firm SovEcon, said: “The Russian agriculture ministry has suggested a 4m-tonne increase in the grain export quota.
“According to a draft decree to be introduced on Thursday, the quota for wheat, corn, barley and rye, without distinction between crops, will be increased to 28m tonnes.”
The US Department of Agriculture’s latest World Agriculture Supply and Demand Estimates report has forecast increased supplies, consumption and trade, but also lower ending stocks as part of its global wheat outlook for 2023-24.
What’s the outlook for UK cereals and oilseeds markets?
The AHDB has released its latest biannual Agri-Market Outlooks, outlining its projections for what will influence markets and prices during 2024.
David Eudall, AHDB economics and analysis director, said: “Staying abreast of market conditions is vital for modern farming and post-farmgate businesses as the presence and threat of volatility can quickly change commercial circumstances.”
The outlook suggested that after a challenging autumn and winter planting period, the UK is expected to be a net importer of wheat this year.
It also noted that the dramatic drop in arable prices is becoming a cause for concern for profitability and cashflow.
AHDB analysts said: “With a historically heavy, exportable surplus of wheat and barley, UK prices will continue to track European and global grain markets – this is much like last season. In the short term, competitive Black Sea supplies continue to weigh on global wheat prices.
“Looking forward, however, the focus is on maize supplies, with plentiful production expected from South America, weather depending. Therefore, in the longer term, heavy maize supplies are expected to weigh on the feed grains market.”
The levy board added that as the new season approaches, expectations of a smaller 2024 crop will factor more into prices domestically, and a new-crop premium has already started to develop.
Oilseeds
UK rapeseed markets have suffered a similar fate to cereals in recent months, with prices falling 20% in the past year.
The market is expected to remain bearish in the short term due to large South American crops and Ukrainian exports, but lower forecast production in the EU this summer could provide some support to prices.
The AHDB’s market intelligence team said: “It’s critical to note that new-crop rapeseed price pressure will follow this bearish sentiment, but losses may be limited as OSR’s trading relationship to soya beans has changed for new crop.”