UK’s wheat industry enjoys Brexit glow

21.07.2016

The sharp fall in sterling has raised the competitiveness of UK wheat in international markets, leading to a flurry of deals immediately after the vote last month.

“The currency has made a big difference over the past few weeks. The marginal trades that didn’t make sense were suddenly possible,” says Mr Capey, who oversees operations at the terminal owned by Dutch agricultural trader Nidera.

The currency factor has provided a further uplift to the rise in exports the UK wheat and barley farmers have been enjoying in the crop year to June. Mr Capey says: “It’s been constant all the way through the season. It’s been a steady flow the whole time.”

Compared with large international wheat producers such as the US, Canada and Australia, as well as Russia and Ukraine, Britain is a minnow. However, it has always been an important exporter of wheat to other parts of Europe, such as Spain and Portugal, and north Africa.

Buoyed by several factors, sales overseas have jumped to multiyear highs in the past June-July crop season. In the 11 months from July 2015 to May 2016, the UK exported 2.57m tonnes of wheat, the highest since 2008-09, according to UK customs data distributed by the Agriculture & Horticulture Development Board. Overseas sales of barley in the same period totalled 1.89m tonnes, the highest since 1996-97.

The port at Ipswich, at the head of the River Orwell and 12 miles from the open sea, is among the UK’s key grain ports. A total of 563,760 tonnes of UK grains was exported from Ipswich in the first half of 2016, an increase of more than 50 per cent from the same time last year.

Jonathan Lane, trading director at Gleadell Agriculture, owned by US trading house Archer Daniels Midland and Invivo, the French agricultural co-operative, says that there have been three reasons supporting British exports.

“Firstly, the comparatively low sterling versus the dollar, second, cheap freight rates and third, the high price of corn relative to wheat,” he explains.

Uncertainty about Brexit and the strength in the dollar meant that the pound fell at times more than 10 per cent during the year to the end of June, while the Baltic dry index is down almost 15 per cent since the start of July last year.

“With the freight rates coming down so much, physical distance doesn’t mean that much,” says Arthur Marshall, analyst at AHDB.

What has added to the competitiveness of UK wheat has been the rally in international corn prices earlier this year due to the drought in Brazil and floods in Argentina. Corn is primarily used for livestock feed, and the sharp increase in prices made British feed wheat an attractive alternative.

The price difference at one point was such that US buyers on the east coast found importing UK feed wheat to be cheaper than domestic corn. A vessel with 63,000 tonnes of British feed wheat was sold to the US in May, while earlier this month, the UK arm of Glencore shipped 70,000 tonnes — a record single British shipment of the commodity — to Vietnam.

Unlike milling wheat for food production where quality is key, feed is bought on the international markets primarily on cost. “Feed wheat is price sensitive. It all comes down to price,” says Mr Marshall.

But the window of opportunity for UK grain exports may be coming to a close, say traders. The recent fall in US corn prices due to oversupply concerns has meant that the competitiveness of British grains is declining even with the weak pound.

While UK wheat was the cheapest on the market earlier this year, today the best value comes from the Black Sea region, including Ukraine and Russia, where the harvest is under way.

“The opportunity for UK wheat to go down to Asia in the short to medium term is probably gone,” says Mr Lane.

Whether UK wheat remains attractive to international buyers will partly depend on the quality of this year’s French wheat crop, which has been affected by the heavy rains. Lower-quality EU wheat will mean that some of the grain intended for milling will be downgraded to feed wheat, increasing competition for Britain.

Wheat yields in the UK are also likely to be affected by the rains, but this could lead to firmer prices, putting British feed grains at a disadvantage.

After months of co-ordinating truck arrivals, mobile elevators and storage for the grains brought to port, Mr Capey is now waiting for the arrival of the UK’s new barley and wheat harvest.

Small amounts of new barley crops have slowly started to arrive, while the new wheat harvest will start in mid-August. It is too early to make a judgment, he says, but adds: “This year there is talk about a reduction of crop size.”
 


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