UK wheat is in a rare price position, as some of the world's most competitive traders told Agricensus on Wednesday, as domestic supply and demand dynamics combine with a weak pound and costly competition.
The UK has a mixed record in the global wheat export market, typically swinging from a net importer of wheat to a net exporter based on a range of supply and demand factors.
UK wheat exports fell from 2.8 million tonnes in the 2015/16 marketing year to just 300,000 tonnes in 2018/19, according to figures from UK farming body AHDB.
And while changes in wheat milling demand are generally negligible, demand from the UK's biggest feed wheat consumers has weakened as two mills have closed amid falling margins.
With UK supplies set to return to their highest level since 2015, 8% above last year's harvest, UK wheat is looking increasingly competitive on the international stage and not helped by the country's weak currency.
And with global agricultural trade typically priced in dollars, a resurgent dollar has made cargoes outside the United States increasingly competitive.
The uncertainty of protracted Brexit negotiations has hung over the British pound, exacerbating this weakness and in turn making UK exports more attractive.
The pound sterling is down 10% against the dollar from March 2019, with the pound 20% lower than it was before the June 2016 referendum on the UK's membership of the EU.
Over a similar period, the euro is trading just 4% lower against the dollar, with exporters in France – the EU’s biggest wheat exporter – looking nervously over their shoulders as they see more competition in an increasingly crowded market.
“There may be some cargoes out of the UK that may go to Algeria… The GBP Weaker is helping UK wheat to be competitive,” a French trader told Agricensus.
“Normally the UK doesn’t worry about price when they need to export, they tend to align on French (prices). The issue with the UK is more about logistics capacity,” a second trader said.
“The UK is competing in Algeria and there is no queue for French wheat in August… the Baltic can do it too (Algeria) and Romania is doing some,” a futures trader told Agricensus on Wednesday.
However, despite French fears that the UK is moving into the wheat milling sector, most of the action so far has been in the animal feed market as concerns remain over what this year's heatwave has wrought.
“The UK is desperate to sell but the quality is still unknown, but they have done some wheat business this week,” a UK broker told Agricensus.
Post: Marina Carvejani
Author: AgriCensus
Source: AgriCensus
