Milling wheat breakfast market update

Jack Watts & Anna Lockwood

AHDB Market Intelligence

Overview

Milling wheat price context

The global picture

The domestic scene

Take home messages

Questions

Milling wheat price context

3

UK ex-farm wheat prices – weak feed base but strong milling premium

90

115

140

165

190

215

240

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Ju

l-13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Ju

l-14

Sep

-14

No

v-1

4

Jan

-15

£ p

er

tonne

Full spec bread wheat Feed wheat

Source: AHDB/HGCA

Forward futures prices- unusual ‘carry’ into the new crop

120

122

124

126

128

130

132

134

136

138

140

£ p

er

ton

ne

Source: AHDB/HGCA

Ten year UK bread milling wheat premiums - historically high, so probability points to lower levels in 2015/16

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

Pre

miu

m a

s a

% o

f fe

ed

ba

se

pri

ce

UK

ex

-fa

rm b

rea

d m

illi

ng

wh

ea

t p

rem

ium

(£

/t)

Premium (left axis) Premium as % of feed base (right axis)

Source: AHDB/HGCA

The global picture

Global wheat prices – UK futures returning to discount to global futures

90

115

140

165

190

215

240

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Se

p-1

2

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Ju

l-13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Ju

l-14

Sep

-14

No

v-1

4

Jan

-15

£ p

er

tonne

Chicago wheat UK wheat Paris wheat Minneapolis wheat

Source: Reuters

A second year of global grain surplus – stocks not a concern for spot markets

1,500

1,600

1,700

1,800

1,900

2,000

2,100

Pro

duction a

nd U

tilis

ation (

M t

onnes)

Wheat & coarse grain production

Wheat & coarse grain utilisation

10

15

20

25

30

Sto

cks-t

o-u

se r

atio (

%)

Wheat stocks-to-use ratio

Coarse grain stocks-to-use ratio

Source: FAO

Growing dominance of maize – 1 billion tonnes by 2016?

500

600

700

800

900

1000

1100

1200

Pro

duction (

M tonnes)

Wheat Maize

2014 Baseline Wheat Projection 2014 Baseline Maize Projection

Source: USDA

2015 wheat areas – Slight increase in world harvest area forecast, but lots still to plant

20

25

30

35

40

45

50

N America EU FSU

Mha

2013

2014 est.

2015 proj.

Source: IGC

The domestic scene

UK wheat overview- the wrong type of wheat?

10

11

12

13

14

15

16

17

18

M t

on

nes

UK wheat production Return to net-exporter, but

exports have been slow so

far.

Currency is making UK wheat

uncompetitive into Europe, but

competitive on dollar terms.

Export fortunes could change.

A limited group 1/2 area and low

protein means we are suffering

from ‘the wrong kind of wheat’

= more imports and more exports.

Source: Defra

Bread flour dominates UK flour production

0

500

1000

1500

2000

2500

3000

3500

4000

Tho

usan

d t

on

ne

s

Biscuit, cake, ingredients and household flours Bread making flour

*Jul-Dec Source: Defra

GB wheat quality – protein is the issue

2013 2014

Percentage of GB Group 1 wheat samples that

meet full specification (76Kg/hl, 250s, 13%)

Source: AHDB/HGCA Cereal Quality Survey (final results)

Quality and premiums - EU/global issues prevent imports from capping the premium, but.....

0

5

10

15

20

25

30

35

40

45

0 10 20 30 40 50 60

Ex-f

arm

bre

ad m

illin

g p

rem

ium

(£/t)

% of Group 1 samples meeting full spec (13%, 250s, 76Kg/hl)

2008

2012

2003

20132009

2014

Source: AHDB / HGCA

Getting closer to import parity again

-20

-10

0

10

20

30

40

50

100

120

140

160

180

200

220

Pre

miu

m o

n G

erm

an “

A”

over

UK

full

spec g

roup 1

£/t

Pri

ce £

/t

PremiumGerman "A" Wheat, CIF east coastUK full spec bread wheat ex-farm

Source: AHDB/HGCA

Long term protein % in GB wheat – lowest since 1998

10

10.5

11

11.5

12

12.5

13

13.5

Pro

tein

conte

nt (%

)

Source: AHDB/HGCA

Narrowing the yield gap between group 1 and 4 – could make the barn fillers more marketable

85

87

89

91

93

95

97

99

101

103

105

107

109

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

RL y

ield

Top group 1

Bottom group 1

Top group 4

Bottom group 4

Source: AHDB/HGCA

Take home messages

Lots of feed to mid quality grain around in the world this season…

… Giving the UK an issue with too much of the ‘wrong’ type of

wheat…

… But will new varieties on the UK scene increase supplies of the

‘right’ type of wheat in coming seasons?

But premiums are unlikely to be this high next time round.

Far too early to judge the new crop given the increasing

dominance of spring cropping.

Thank you