As harvest rolls on and we face entering the 2020/21 season with a national deficit of wheat, in this highlight article we highlight these long term risks being faced over the next 12 months and potentially beyond.
With poor yields being reported in Europe and the Black Sea and prices having climbed again recently, it is easy to overlook the broader risks that are going to be faced over the next 12 months.
Since October, the deficit of wheat for the upcoming season has been known about and factored into new crop prices, while the exact size of the UK crop is not yet known, the pricing effects of this factor alone will be minimal. November-20 UK feed wheat futures having already moved to a premium to Paris milling wheat futures, unable to climb higher than the cost of importing European wheat (import requirement are already priced in). This leaves two distinct risks for UK wheat, global markets and currency.
The pound has been under pressure from two factors, Brexit and economic pandemic fears. This leaves two risks and potential upsides for the pound, a comprehensive deal with the EU, and economic recovery (remember, a stronger pound puts pressure on domestic prices).
The UK and EU have continued to politically posture Brexit positions and push that there remain default positions, but positive movements and announcements have the potential to quickly increase the value of the pound.
So far in July the value of the pound has increased 1.3% relative to the Dollar and up 0.6% relative to the euro on news that ‘landing zones’ for agreements such as fishing are being drawn up, removing a lot of the cliff-edge threat.