Strong margins forecast for harvest 2022 before 2023 squeeze

Milling and feed varieties will remain the top performers in the 2023 wheat market, but with a narrowing gap between the two, according to new financial modelling by the AHDB.

The scenarios were published by the levy body in a week when UK feed wheat new crop futures (Nov-22) closed at £340.10/t on 18 May, almost double the price at May 2021.

Megan Hesketh, senior arable analyst at the AHDB, says a tight supply and demand balance for all grains, intensified by the war between Russia and Ukraine, had driven values in the grain markets to record highs in recent months.

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But input costs have been rising, too – from July 2021 to April 2022, UK-produced ammonium nitrate at 34.5% N averaged £601/t, up 138% (+£349/t) from the average over the 2020/21 season.

Looking ahead, arable margins will rely largely on the price paid for fertiliser, Ms Hesketh predicts.

In one of the scenarios, the AHDB has taken an average price for the season to date for UK-produced AN 34%, muriate of potash and triple super phosphate.

For the second, the top-recorded prices this season for these three fertilisers are used to compare profitability.

“Perhaps to no surprise with strong global wheat values supporting UK feed wheat futures, milling wheat and feed wheat are top performers in both scenarios, though the difference in the price paid for fertiliser makes a large difference in gross margin,’’ Ms Hesketh points out.

The figure for the milling wheat premium for harvest 2022 uses an average for the 2021/22 season to date – higher on the year due to the present tight supply and concerns around milling wheat availability.

Milling wheat gross margins therefore look attractive for harvest 2022, says Ms Hesketh.

Oilseed rape follows closely behind, but new crop (November 22) prices are lagging behind the previous May 2021 highs, as supply is expected to improve globally next season.

However, crush demand is set to be firm also, which could keep balances tight in the first half of the marketing year.

For the 2023 harvest, costs look set to remain high and margins are likely to be squeezed compared to harvest 2022.

But using a five-year average premium to calculate the milling wheat price, the AHDB predicts that if the milling wheat balance remains tight next season, this premium could increase.

In the modelling, milling oats performed higher than winter rapeseed for harvest 2023, through reduced applications of fertiliser filtering into reduced variable costs.

It also indicated that winter rapeseed margins are set to remain favourable for harvest 2023, but growers could be deterred by challenges to yield from cabbage stem flea beetle.

For break crops, feed beans and winter triticale look set to deliver a higher output from cash spent on variable costs.

“The pulses market can be variable at times, but crops require lower inputs and benefit fields though nitrogen fixing, something to consider in another high-cost year,’’ says Ms Hesketh.