UK wheat exports increasingly competitive as sterling slides

UK wheat is in the rare position of pricing as some of the most competitive on the planet traders told Agricensus on Wednesday, as domestic supply and demand dynamics have combined with a weak pound and costly competition.

The UK has a mixed record on the global wheat export market, typically swinging from a net wheat importer to a net exporter based on a range of supply and demand factors.

The UK’s wheat exports slipped from 2.8 million mt in the 2015/16 marketing year to as little as 300,000 mt in 2018/19, according to data from UK farming body AHDB.

And while changes to milling wheat demand are generally negligible, demand from the UK’s biggest feed wheat consumers has faltered as two plants shuttered amid falling margins.

With supply in the UK set to bounce back to its highest level since 2015, up 8% from last year’s drought-struck crop, UK wheat is looking increasingly competitive on the international stage and helped in no part by the country’s faltering currency.

And with the global agriculture trade typically priced in dollars, a resurgent greenback has made non-US cargoes increasingly competitive.

The uncertainty of protracted Brexit negotiations has hung over the British pound, exacerbating that weakness and in turn making UK exports look more attractive.

Sterling is down 10% against the dollar from a 2019 high set in March, with the pound 20% lower than it was prior to the June 2016 referendum on the UK’s membership of the EU.

Over a similar timeframe, the euro is pricing just 4% lower against the dollar, with exporters in France – the EU’s biggest wheat exporter – glancing nervously over their shoulders as they see further competition in an increasingly crowded market.

“There can be some cargoes out of UK that can go to Algeria … Weaker GBP is helping UK wheat to be competitive,” a French trader told Agricensus.

“Usually the UK doesn't bother about price when they need to export, they just tend to align on French (prices) … The question with UK is more about logistical capacity,” a second trader said.

“The UK is competing in Algeria and there is no line up for French wheat in August … Baltic could also do (Algeria) and Romania is doing some,” a futures trader told Agricensus on Wednesday.

However, despite French fears of the UK muscling into the milling wheat business, most of action to date has been on the feed wheat market as there remain lingering concerns over what this year’s heatwave has done to crop quality.

“The UK is desperate to sell but quality is still unknown, (they) have done some feed wheat business this week though,” a UK-based broker told Agricensus.