WGIN Stakeholders Meeting, Rothamsted 30 November 2017 Wheat Market Update Amandeep Kaur Purewal Senior Analyst, AHDB James Webster Analyst, AHDB
Overview Global perspectives Another year of plentiful supply, however, although all looks calm on the surface there are some key risks to be aware of. UK focus A contrasting domestic situation compared with the global picture. Why we can t just label wheat as wheat and the challenges in store post Brexit
Global perspectives
A smaller world wheat crop, that has grown M tonnes 755 750 745 740 735 730 725 720 715 710 Global production M tonnes 180 160 140 120 100 80 60 40 20 0 Production in top exporting countries Australia Canada EU Russia Ukraine United States Source: USDA
Nearby global wheat futures UK prices move up UK feed wheat Chicago wheat Paris milling wheat $/t 220 210 200 190 180 170 160 150 140 130 120 Source: AHDB
China is distorting perspectives on global wheat 40% Wheat stocks-to-use ratio Global STU Global STU exclud. China 35% Stocks-to use (STU) 30% 25% 20% 15% * Forecast Source: USDA
Top five wheat exporters (Mt) 2015/16 2016/17 (est.) 2017/18 (proj.) EU 28 33.8 USA 29.1 Russia 32.5 Russia 25.4 Russia 27.6 USA 26.7 Canada 21.9 EU 28 26.4 EU 28 26.0 USA 21.6 Australia 22.1 Canada 20.8 Ukraine 17.4 Canada 20.3 Australia 19.0 Source: IGC
Dryness in Australia hits wheat production estimates 1 June 31 August September Source: Australian Government
EU wheat supply and demand Euro strength impacts need monitoring Mt 2015/16 2016/17 est 2017/18 f cast Opening stocks 12.2 14.7 10.1 35 Cumulative EU exports - soft wheat 2015/16 2016/17 2017/18 Production 151.3 133.7 151.5 Imports 4.1 3.3 3.3 Domestic demand H&I usage Animal feed Exports inc. flour 120.2 58.5 55.8 116.6 58.3 52.4 116.3 58.8 51.8 32.8 25.0 27.0 Ending stocks 14.7 10.1 11.6 M tonnes 30 25 20 15 10 5 0 Jul Oct Jan Apr Source: EU Commission
Global maize supply and demand 1,150 Production Demand Stocks-to-use 24% Production and demand, Mt 1,050 950 850 750 650 22% 20% 18% 16% 14% 12% Stocks to use ratio 550 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18* 10% * Forecast Source: USDA
Wider price spread between global wheat and maize UK feed wheat Chicago wheat Paris milling wheat Chicago maize $/t 220 210 200 190 180 170 160 150 140 130 120 Source: AHDB
Global wheat heading towards a precarious situation? 30 Harvested wheat area US Canada EU Australia Russia 38% Proportion of global wheat stocks held by top exporters 25 36% 34% Mha 20 15 32% 30% 28% 10 26% 5 24% Source: USDA
Global summary Another year of comfortable supply but elements of risk ahead Increasing importance of Russia Global wheat stocks excluding China paint a different picture from the headlines Wheat area in the main exporting countries in decline higher reliance on yield means higher volatility.
Bringing the UK into focus James Webster
Above average production driven by yield 20 18 16 14 12 5 year rolling average UK wheat production Mt 10 8 6 4 2 0 *Provisional Source: Defra
UK wheat S&D increasingly important to domestic price formation Mt Opening stocks Production Imports 20 15 10 5 Closing stocks Exports & free stocks 6 5 4 Exports Operating stock required 0 Mt 3 2 Dom. Use (Mt) 13/14 14/15 15/16 16/17* 17/18** Total 14.19 15.29 14.81 15.79 15.88 feed 6.37 7.08 7.09 7.31 7.40 1 0 *Estimate **2017/18 First official estimate Source: DEFRA, AHDB
Competition in the feed sector 235.00 215.00 195.00 2017/18 Q1 Usage of wheat, barley and maize in GB animal feed 175.00 2016/17 /t 155.00 135.00 2015/16 115.00 2014/15 95.00 75.00 2013/14 Feed Wheat Feed Barley 0% 20% 40% 60% 80% 100% Wheat Barley Whole and flaked maize
Cumulative net wheat trade many moving parts 1,000,000 800,000 600,000 400,000 200,000 0-200,000-400,000-600,000-800,000-1,000,000 Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun UK wheat trade and cumulative net-trade (2013/14-2016/17) Imports Exports Cumulative net-trade 2013/14 2014/15 2015/16 2016/17 2017/18 Source: HMR&C
Challenging bread quality and consistency, but offset by a stronger group 1 & 2 area Source: AHDB Cereal Quality Survey
Gross margins positive for winter wheat
Worrying trend for the group 3 area and expect a further fall off in quality. Rebound in 2018? % % of GB wheat area sown to nabim group 3 varieties % of group 3 samples meeting 74Kg/hl, 220s, 11.5% 50 45 40 35 30 25 20 15 10 Disease resitance rating (1-9, where 9 is best) 6 5.8 5.6 5.4 5.2 5 Average resistance of nabim wheat Groups to Septoria tritici Group 1 Group 2 Group 3 Group 4 Soft Group 4 Hard 5 0 2011 2012 2013 2014 2015 2016 2017 4.8 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Source: AHDB Recommended List
Indication of lower area in 2018/19 2,500 GB wheat area 2,000 1,500 Kha 1,000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
What about Brexit? 170 EU import tariffs applicable For in quota volumes Outside TRQ system or once quota limit is exhausted 160 150 Import price subject to reciprocal import tariff Import price Low/ medium quality soft wheat High quality soft wheat (14% protein, 12% moisture basis) 12/t n/a 95/t Variable rate per tonne 140 130 Domestic market price Export price 120 Export price subject to EU import tariff 110
Wheat isn t just wheat 180 A grade of wheat in surplus e.g. low grade bread wheat 180 A grade of wheat in deficit e.g. high protein bread wheat 170 170 160 160 per tonne 150 140 Domestic market price per tonne 150 140 Domestic market price 130 130 120 120 110 110
Challenges and opportunities for the UK wheat market Challenges Feed wheat facing a more competitive market. Agronomic challenges leading to higher spring plantings (in particular barley). Brexit Opportunities With potential import substitution in wider agriculture, feed wheat demand could grow. Could spring wheat see a boost, from the increased spring plantings? Niche markets present potential opportunities for export. Opportunity to press forward with productivity, and have a competitive agri-food sector.
For more on Brexit www.ahdb.org.uk/brexit
Inspiring our farmers, growers and industry to succeed in a rapidly changing world www.ahdb.org.uk
Thank you amandeep.kaur.purewal@ahdb.org.uk 024 7647 8954 james.webster@ahdb.org.uk 024 7647 8844