UK wheat markets lost ground this week due to a strengthening of sterling and the continuing improvement in US crop conditions.
The current AHDB Grain Market Report shows UK Nov-25 feed wheat futures at £180.05/t, the May contract below £160/t.
The latest USDA US winter wheat report rated 54% of the crop as good/excellent, a 3% improvement from the start of the month. US crop conditions will remain a watch point heading towards harvest and further improvements will likely have a bearish influence on markets, suggests AHDB lead analyst Millie Askew.
The USDA report does have a silver lining. Despite wheat ending stocks estimated to be slightly higher, fundamentally the latest estimate continues the trend of falling global grain stocks, which has the potential to underpin the market. However, uncertainty around global demand and geopolitical factors means this is also a watch point, Millie advises.
Paris rapeseed futures (Nov-25) stand at €487.75/t. Rapeseed prices found support from the wider veg oil market, in part due to easing US-China trade tensions.
Concerns over US trade deal
The trade deal with the US might be a sign of tensions easing between London and Washington but the issue is whether it is good for UK feed wheat growers.
Many details are still to be announced but AHDB analysts have concerns over the loss of reliable ethanol markets.
The deal will remove the current 19% tariff on ethanol imports and replace this with a duty free TRQ of 1.4 billion litres. While this sets out to lower costs for manufacturing sectors, which use ethanol as a raw material, it could pose a considerable threat to UK agriculture.
The US is the world’s largest producer of ethanol, which is primarily produced from maize, something the country has an abundance of. As a result, the US can produce bioethanol at low cost and export it at a competitive price on the international market.
UK bioethanol is already struggling due to US competition. With the new tariff changes, AHDB analysts believe there is a risk that more competitively priced US ethanol imports will be preferred, putting pressure on UK ethanol production.
Over the last 25 years, human and industrial (H&I) wheat consumption has fluctuated greatly, largely in line with the openings or closures of one or both bioethanol plants, with the human aspect remaining more stable.
With H&I usage accounting for around half of total domestic wheat consumption over this period, changes in demand could have considerable impact on the domestic balance. With a relatively low proportion of imported wheat used for bioethanol production, a loss of demand from this sector, in an average production year, would likely leave the UK with a surplus of home-grown feed wheat.
If bioethanol demand dropped to balance UK feed wheat supplies, the market may look to export a greater volume of the grain. However, as it stands, domestic prices would need to be more price competitive to gain access to global markets.
