Bad Crop Pushes Wholesale UK Grain Prices to Record High

on Dec 3, 2012

**Record Grain Prices Trigger Food Inflation Concerns**

Pushed by a crop failure and increased demand, UK wholesale grain prices hit a record high last week, *The Financial Times* reported on 2 December 2012. The price of feeding wheat in the futures market in London reached an all-time high of £227 a tonne, up 45 per cent since the beginning of the year. Meanwhile, the cost of UK feeding barley also rose to a record high, trading in London at £190 a tonne, up about 25 per cent since January. Analysts and industry executives have raised concerns that this price surge is likely to boost food inflation in the UK, with costs for everything from bread to beef and beer expected to rise over the next few months.

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Gary Sharkey, head of wheat procurement at Premier Foods (LON:PFD), the company behind the popular Hovis bread, told The Financial Times: “The domestic situation is more worrying than in 2007-08 during the global food crisis.”
**Industry Plans Biggest Imports in More Than Three Decades**
To offset the record high local prices and the domestic shortage, UK wheat flour mills, commodities trading houses and meat producers, which also rely on barley and wheat as basal diet for fattening herds, are planning their biggest net imports of wheat since 1980. According to the Home Grown Cereals Authority (HGCA), the industry-funded body, UK net wheat imports in the 2012-13 crop season will reach 2.04 million tonnes — the most in 32 years.

!m[UK Agribusiness Industry to Make Biggest Wheat Imports in Three Decades as Food Inflation Concerns Rise ](/uploads/story/946/thumbs/pic1_inline.png)This estimate foresees an untypical situation for the UK, since traditionally the country is a grain exporter, supplying the North American and Spanish markets. The last time the UK bought from overseas was in 2001-02, when it imported a small amount of wheat. According to grain traders, the UK will now rely on Germany and, to a lesser extent, on France to source most of its wheat import needs.

**Domestic Grain Production Down While Biofuel Industry Demand Up**
The planned drastic increase in grain imports in the UK is due to two reasons – a significant decrease in domestic production on the back of a poor harvest due to exceedingly wet weather conditions over 2012 and rising demand from the country’s biofuel industry. According to the HGCA, the UK harvested 13.3 million tonnes of wheat in the 2012-13 crop season, which is 13 per cent less than last season’s production and the lowest in five years. The bad crop was caused by unfavourable weather conditions during the most crucial growing months. The UK had its wettest June, July and August since 1912, the country’s national weather service Met Office has said.

While production has decreased, wheat demand is on the rise, expected to reach 14.65 million tonnes, or 7 per cent up from the previous season, as the mothballed Ensus plant on Teesside resumes operations and the Vivergo ethanol plant, located at Saltend, near Hull, starts producing biofuel from crops. The two ethanol plants have the capacity to process about 2.5 million tonnes of wheat a year, which equals nearly 20 per cent of the total UK wheat harvest this crop season.


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