New crop concerns bolster old crop prices

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The rise in UK feed wheat futures for harvest 2024 relative to world markets over recent weeks, has benefited old crop (May-24) prices.

The provisional AHDB Early Bird Survey indicated a 1% fall in the wheat area but challenging conditions have continued. While it’s not clear yet what the final UK 2024 wheat area will be, the pricing relationships for new crop have already shifted, and that’s having impacts on old crop prices too.

In the latest AHDB Grain Market update it reports that since October new crop UK futures Nov-24 contract has risen 2.4% to £208.05/t, stretching above the May-24 contract, the Nov-24 contract has

Meanwhile, UK feed wheat futures for May-24 fell £6.65/t or 3.3% over the same period under pressure from the global market to £195.85/t. But this is a much smaller fall than May-24 Paris milling wheat futures, which fell €16.75/t (6.8%). This is despite a recovery in the strength of sterling against the euro and even more so the US dollar. Stronger sterling usually results in steeper falls (or smaller rises) in UK prices compared to global markets as it makes UK grain less competitive on global markets.

As new crop prices rose, this started to stretch the price gap from May-24 UK feed wheat futures to Nov-24 futures. A wide gap or carry would likely signal a larger incentive to store grain and carry into the new season. The gap between May-24 and Nov-24 futures is currently over £12/t, nearly double the gap between May-20 and Nov-20 futures in November 2019.

A wider carry is more likely now compared to previous seasons as it now costs more to carry grain in terms of electricity, financing etc.  However, there’s still a limit to how wide the carry can get, while keeping an incentive to sell grain in this season. As a result, May-24 (and other old crop futures prices) also had to rise too relative to the European and global markets.

The rise in old crop prices relative to the European futures will prevent further export sales in the current season and in some parts of the country could start to make grain imports more attractive. A rise imports this season is already forecast, largely on the back of the poorer quality of the 2023 crop.

As imported grain prices look more attractive, or indeed begin to price in, this sets a limit to how far UK prices can now rise relative to the global market.  In short, future price rises must come from the global market.

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