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Milling wheat – a potential opportunity for 2013

A feature of the 2011-2012 markets has been the fall in the milling wheat premiums but consultant Simon Ward of Increment, believes that this is a one-off and growers should not ignore the potential premiums that are possible from milling wheats for this coming growing season.

A11 Wheat Mkt Share by Group

A11 Wheat Mkt Share by Group

“Fundamentally a market responds to short term supply and demand drivers, and whilst this year exceptionally good harvest weather across most of the country meant there were high quantities of quality grain on the market resulting in a lower premium, I believe this is unlikely to be repeated. With potential supplies also lower there could be a large increase in premium.”

“Over the last two seasons there has been a decrease in the proportion of Group I and 2 wheat seed sold in the UK. There has been a drop in the proportion of Group 1 wheat from 13.9% for harvest 2011 to 13.1% for this harvest. There has also been a significant drop in the acreages of Group 2’s which are down to 9.3% in 2012 from 13.3% of the total in 2011. If the dry conditions result in a lower wheat yield, the quantity available will reduce even further.”

“In addition to this, the last year saw UK wheat competing with other feed grains on the global market, whereas usually wheat would expect to gain a premium over grains such as maize. Looking ahead, it makes sense that milling wheats should demand a higher price than feed grains, since only wheat can be used for making bread while any grain is suitable for animal feed.”

Chris Tye, farm business manager for Dalmark Grain, has certainly seen the effects of this shift away from milling wheats to increasing acreages of Group 4’s over the last two seasons, but suggests that growers are missing an opportunity if not considering milling wheats for the coming season.

“Current premiums for new crop Group 1’s and 2’s are being offered at £20-25, and as much as £10 for Group 3’s. Based on the supply versus demand equation, there is every reason to believe that these premiums are sustainable. We are also seeing continuing demand by bakers to maximise the inclusion of UK wheat in their loaves as a marketing strategy – in fact only this week Hovis announced the launch of the premium ‘British farmers loaf’ which aims to celebrate ‘Britishness ‘and British farmers.”

“When you take the feed wheat price which is currently hovering at £150 and balance that against rising costs of production around £130-£135/t – adding value to production has to be of interest. “

Regional factors will also play a part in supply and demand contends Mr Tye, “for example the opening of the Vivergo plant will mean that growers in the north have a ready market for their feed wheat, which could potentially have an impact on feed wheat in East Anglia where it’s possible we could be looking at some discounting in this instance. So, in this region it could be well worth growing milling wheats at a premium for local mills.”

“Generally, where there is an opportunity and a desire to grow for contract such as in the case of Crusoe and Solstice for Warburtons; it has to be worth considering particularly when balanced against the feed wheat market dynamics. However, where contracts are not available it is still possible to make the extra premium for milling wheats. “

“Varietal choice plays a key role in all of this and it’s well worth spending some time looking in detail at the figures on the Recommended List (RL). Taking yield as a selection criteria a variety such as JB Diego is listed as 104, but with the RL error margin of 2%, a variety such as this could actually be 2% less yielding and could be false economy. In this instance, we would advise growers to look at a Group 3 variety such as Invicta or Torch with yields of 104 & 105 respectively, with the added potential of an easily achievable £5-£10 premium. These varieties are yielding pretty much the same as each other but the Group 3’s still have the premium to consider.”

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