Can UK wheat compete on the international stage? Grain market daily

• UK feed wheat futures (Nov-24) closed at £190.60/t yesterday, up £5.20/t from Friday’s close. Weather conditions in top exporter, Russia remained a key driver for global market price direction over the weekend. Russian export prices are climbing as a result, with 12.5% Russian wheat scheduled for June FOB delivery was quoted at $216/t on Friday, up $4/t on the week (LSEG).     
• UK feed wheat futures moved in a different direction to Chicago and Paris wheat futures which were both down yesterday, as domestic prices adjusted following the bank holiday. Global prices were pressured after the USDA reported improved US winter crop conditions and rain was forecast in southern Russia. 
• New crop Paris rapeseed futures (Nov-24) were down €3.00/t yesterday to close at €485.50/t.
•  European rapeseed prices fell yesterday despite support in new crop US soyabeans. Chicago soyabean futures (Nov-24) gained $3.03/t yesterday, closing at $451.17/t. The USDA’s latest crop progress report showed that soyabean planting in the US was 25% complete as at 05 May, short of analysts’ expectations of 28% complete.

Sign up to receive the Weekly Market Report and Grain Market Daily from AHDB.

Throughout this series we explored key costs as well as income of UK wheat compared to some global competitors and producers using data from agri benchmark. In this final article, we analyse the cost of production (sum of all costs to produce that crop) and net margin (income less all costs, before subsidies) achieved by each nation and consider how we see the UK competing in the future.

The data represents ‘typical’ crops, based on five-year averages (2018-2022). The following countries are included within the analysis, Canada, Germany, Denmark, Spain, France, Ukraine, UK, and the US. 

When looking at the total costs of each country, the UK shows the second highest cost of production (£1605.36/ha), after Denmark (£1808.58/ha). There is large variation between countries, of £1090.11/ha, with the lowest cost of production being achieved by the US (£718.47/ha). As seen in earlier articles, while the UK cost of production is high overall, it is diluted well by the yields achieved to £184.06/t, comparable to that of the US (£181.30/t).

Despite a high cost of production, the UK produces on average the second highest net margin (£98.88/ha), second to France (£102.18/ha). Not only are these the highest net margins, but also the only positive ones of the countries within the comparison. Both the UK and France are the countries which most commonly show a positive net margin, over this period. It is important to remember these figures show the full economic net margin, which includes imputed costs, such as family labour and rental equivalent on owned land. It also does not include subsidy income which would increase some of the country’s margins. Therefore, these are not necessarily the direct returns farmers in these countries achieve. So, why have the UK and France fared so well?

While the UK data is positive, partly due to the high prices explored in in the previous article of the series, increased yields also had an impact. These unusually large 2022 margins boosted the UK five-year average profit significantly, an increase on the 2018-2021 average margin of £72.54/ha. France saw a similar increase (£86.72) for the same period. Though margins were higher in 2022 for most countries, three factors contributed to these increases for the UK and France:  higher yields, better prices, and a lower-than-average increase in cost of production.

Both the UK and France have balanced cost of production and expected production relatively well between harvest 2018 and 2022. For example, overhead cost control allows farmers to spend more on yield boosting inputs, such as fertiliser, and avoid overspending on poorly returning crops. This seems to be a key factor of the countries’ success.

The UK is currently competing well on the global stage, with fair profitability over a five-year average. Yield is well known to be a key driver of UK profitability, with high prices and managing cost of production good secondary drivers. The question will be, with SFI, carbon reduction challenges as well as the apparent difficulties of harvest 2024 yet to be fully realised, can the UK remain competitive? It seems that managing costs in line with expected yields and prices will be key to maintaining net margins.

Sign up to receive the latest information from AHDB.

While AHDB seeks to ensure that the information contained on this webpage is accurate at the time of publication, no warranty is given in respect of the information and data provided. You are responsible for how you use the information. To the maximum extent permitted by law, AHDB accepts no liability for loss, damage or injury howsoever caused or suffered (including that caused by negligence) directly or indirectly in relation to the information or data provided in this publication.

All intellectual property rights in the information and data on this webpage belong to or are licensed by AHDB. You are authorised to use such information for your internal business purposes only and you must not provide this information to any other third parties, including further publication of the information, or for commercial gain in any way whatsoever without the prior written permission of AHDB for each third party disclosure, publication or commercial arrangement. For more information, please see our Terms of Use and Privacy Notice or contact the Director of Corporate Affairs at info@ahdb.org.uk  © Agriculture and Horticulture Development Board. All rights reserved.