Global wheat output down, but UK prices yet to feel the pressure*

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Pouring wheat grain image

World wheat production is down significantly this crop year, with global stocks set to drop as supply fails to match demand following difficult conditions in a number of key growing regions. Yet changing dynamics within the UK cereal market as domestic bio-ethanol production ceases at Vivergo and Ensus mean that domestic prices have yet to lift in response.

It’s an unusual situation, and anyone without good cover on energy feeds going forwards should be watching closely for opportunities to secure additional contracts during the current lull. There is no clear picture as to how long it might last.

SugaRich Dairy feed
Confectionery blends like SugaRich Dairy supply more balanced energy than in cereals

In terms of cereals, farmer selling here remains slow – probably due to the expectation that prices should rise at some point in the future – but the alternative energy feeds are faring better. Wheatfeed prices recently dropped around £20/t and soya hulls are approximately £10/t lower than recent highs.

The various biscuit meals and confectionery blends such as SweetStarch and SugaRich Dairy are also worth considering. Delivering a much better balance of energy release in the rumen than cereals, they’re a popular choice for those looking to push yields.

Drought-affected production

However, the potential remains for a sharp upturn in the price of all energy feeds, and the timing will depend largely on how Russia approaches it’s reduced wheat yield. A key exporter, and typically one of the lowest-cost sources of wheat on the market, this year’s harvest was 15 million tonnes (mt) below last year.

So far, Russia has won most of the export business being offered, with the EU securing few contracts. But at some point Russia may have to restrict exports, and the markets could respond strongly if this happens, depending on how it’s implemented.

Other wheat growing areas have been similarly affected. Australia has experienced one of the worst droughts for many years, with wheat production projected to hit less than 19mt, down from 30mt a few years ago and a recent average of around 24mt. Dry weather across Europe has cut output by 13mt.

Shifting market dynamics

According to the latest report from the United States Department of Agriculture (USDA), total world wheat harvest is expected to fall from 759mt in 2017-18 to around 731mt this year. Global year-end stocks (excluding China) are predicted to drop from 148mt to 124mt as a result, and a similar picture is emerging for corn despite increased production.

Global corn year-end stocks (excluding China) are expected to fall from 119mt to 101mt by the end of the year. A reduction in planted acreage in North America means that despite record yield predictions (181 bushels/acre), total production will rise little, and US year-end stocks are projected to fall 12mt.

Yet despite these clear pressures, the biggest current influence within the UK remains the closure of the Vivergo bioethanol plant at the end of September and the imminent closure of the Ensus facility. Together, they equate to an monthly consumption of around 120-150,000t of grains – Ensus has been running on a mix of wheat and corn for the past 3-4 months – and there have been significant imports of both cereals during the past year.

This dramatic change in demand has created a domestic position that is starkly different to that emerging globally, and there are opportunities for feed buyers as the surplus cereal looks for a new home. However, the opposite challenge is facing those needing proteins, as the closures have cut significant volumes of wheat distillers’ feed from the UK market. Vivergo production alone totalled 250,000t/annum.

Changing protein

European rapemeal prices have recently improved to around £220-230/t for the winter, which will be of some help, and a number of key crushers in mainland Europe have now switched back to oilseed rape from soyabeans., The high protein liquids like ReguPro 38 and Regumaize 44 are also worth considering for those needing additional rumen degradable protein (RDP).

In terms of the higher quality proteins, soyabean meal prices are currently linked closely to soyabean harvest progress in North America, which is currently around 75% complete. Latest reports suggest that the weather outlook is favourable, but any significant negative news will likely cause prices to rally.

“…the recent introduction of…NovaPro hot-pressed rapeseed expeller…is welcome news.”

With potential price volatility ahead, the recent introduction of the UK-produced NovaPro hot-pressed rapeseed expeller as another alternative source of rumen-bypass protein (digestible undegraded protein, DUP) is welcome news. As is typically the case for the existing soyabean meal alternatives like SoyPass rumen-protected protein and ProtoTec heat-treated rapemeal, it’s considerably better value than soyabean meal as a source of DUP – similar DUP levels at 16% less cost per tonne equates to buying soyabean meal at £39/t below current prices.

* Prices correct at the time of writing and subject to change. Unless otherwise stated, all prices quoted are for 29t tipped bulk loads delivered on-farm within 50 miles of origin.

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