UK wheat prices under pressure despite strong world markets. Eyes on strong post Brexit currency, large imports and pig industry crisis.

18 Feb 2021

For the first time in 2021, LIFFE May’21 prices fell below £200/t last week before rebounding amid stronger world markets. That should get the alarm bells ringing! 

Of course, currency is playing its part as Sterling continues to firm against the $ and the €. Since 1st of January, our currency surged by more than 5%, which represents a £10 negative impact for our domestic price. Furthermore, the latest trade data showed a record high wheat import volume for December, at 330Kt (see graph below). Traders have done their job well to balance our domestic deficit. With 1.5Mt already imported, we only need 130Kt per month to achieve DEFRA’s 2.2Mt import objective. No doubt this target will be reached, and likely exceeded!

And now, a new story is developing in the UK: pig industry and feed sector news has started sneaking to the fore, potentially adding further pressure to the end of season grain prices. Recent news of crisis talks within the pig sector comes as pig-meat prices slump due to oversupply, at a time when finishing margins are already being squeezed. Both high feed prices and a falling Standard Pig Price (SSP) are driving margins down. 

Other issues are compounding these problems. Excessive post-Brexit bureaucracy is hampering the slaughter and export of finished pigs, creating a backlog of around 100,000 animals which quickly grow overweight and “out of spec” causing pig prices to drop further. 

The pandemic is also slowing output as abattoirs and meat processing plants implement new steps to minimize the spread of Covid-19 within the workforce. Finally, China’s demand for imported pork is dropping, forcing Danish and German producers to seek new markets, among them the UK! The implications for pig numbers and consequently feed demand will soon become clear as UK pig farmers decide how to react. 

So, an uncertain domestic picture is developing. None of these factors are positive for our grain prices. In the short-term, supportive world prices should compensate for weaker UK fundamentals, but these issues will have to be watched for as end of the season UK grain stocks might well be higher than expected!

Jeremy Higgs – ODA UK