Rising UK milling wheat premium threatens revival in imports

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A revival in British milling wheat premiums is, in rendering German supplies more competitive, threatening to revive UK imports, whose high level since the nightmare year of 2012 has surprised investors.

While prices of higher quality wheat have outperformed worldwide – a reflection of a poor quality, if record large, global harvest – those in the UK appear to have fared particularly strongly.

Demand for UK milling wheat “is good with premiums off their lows and good demand to both mills and reports of vessels loading to Algeria”, traders at a major European commodities house said.

The dynamic also reflects the sowings season for winter grains, with the traders noting that “undoubtedly October is always a month where, due to workload, farmer selling slows”.

German vs UK

The price outperformance has closed to £28 a tonne, from £40 a tonne last month, the discount of imported so-called “A” German wheat – a popular purchase by British flour makers, with an elevated protein level typically of some 13% – to eastern UK milling wheat values.

While still a “historically large” price gap, and one likely to spur UK buyers to turn more to domestic supplies, a continuation of the trend would threaten ideas of a switch away from German imports, the AHDB bureau said,”

“If the recent fall in German prices continues then this opportunity [for UK supplies to displace imports] may be diminished,” AHDB analyst Isobel Robinson said.

Import upsurge

The comments follow data which showed that UK wheat imports, at 118,414 tonnes in July, their weakest start to a marketing year since 2011-12 – as the UK began its second wettest year on record, which left the country with a dismal harvest and sent mills scrambling for foreign supplies.

The taste for imports has proved unexpectedly strong, totalling 8.32m tonnes between 2012-13 and 2015-16 – a jump of 87% from the total for the four years to 2011-12.

The resilient imports have been attributed to factors including greater reliability of imported supplies to the gap in specification between what UK farmers have grown to the higher quality demanded by buyers.

In fact, UK farmers for the latest harvest switched sharply to higher grade wheat, a fact reflected in an average protein level which, estimated provisionally at 12.6%, would be the highest in a decade.

AHDB senior analyst Jack Watts said last month that, helped by the shift towards higher-grade varieties, “we might hope that UK wheat imports fall below 1m tonnes” in 2016-17, which would represent a drop of one-third year on year.

Source:  agrimoney.com