UK cereal growers continue to lose out
The impact that the continued shortfall in Group 1 and 2 winter wheats is evident in a recent analysis conducted by Advanta Seeds, comparing average gross margins for the four winter wheat market groups. This also shows that UK cereals growers could be missing out on as much as £23.5 million due to the imbalance of varieties.
The analysis used the HGCA UK national average yield for winter wheat of 8.05t/ha, from which average gross margins for 2003 were calculated. These were then compared with calculations for 2002, taking into account slight changes in input costs and the marginal difference in relative performance difference between the two years.
Comparing the two years, the current higher level of premiums for Group 1 and 2 varieties has resulted in a substantial rise in gross margin. This more than offsets the increase in variable costs, mainly nitrogen and fungicides, which have resulted in a decline in margin for Group 3 and 4 varieties.
Source: Advanta Seeds UK based on HGCA results
Based on these figures, Advanta has also recalculated the potential loss to UK Cereal growers caused by the continued massive oversupply of Group 3 varieties at the expense of potentially more profitable Group 1 and 2s.
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Despite calls from the trade and exporters last year to reduce the area of Group 3s, this sector still accounts for 51% of the winter wheat acreage, compared to 54% last year and the area down to Group 1 and 2s has remained relatively stable at 17% and 9% respectively.
By failing to take advantage of the virtual doubling in premiums for Group 1s to about £20/t and Group 2s for UK milling and export to an average of £10, combined with the drop in gross margin for Group 3s, due to the imbalance of varieties, the potential loss to growers is around £23.5 million, compared to around £10 million last year, even though the area drilled has dropped slightly.
Base area 1.8m ha Actual crop area % Ideal crop area % Differential Gross margin (£/ha) @ UK average yield (8.05t/ha) Value @ average gross margin £'000
% Area (ha)
Group 1 17 20 3 54,000 £367 £19,818
Group 2 9 20 11 198,000 £312 £61,776
Group 3 51 30 -21 -378,000 £234 -£88,452
Group 4 23 30 7 126,000 £241 £30,366
Total 100 100 £23,508
Source: Advanta Seeds UK based on HGCA results and figures for UK average wheat yield
"Whilst there is still a need for Group 3 varieties, the fact that Group 1 premiums at around £20/t amount to a third of the base feed price, and Group 2 premia for a quarter, indicates the level of demand there is, especially for Group 2 varieties such as Solstice for the home and export trade," comments Paul Hickman of Advanta Seeds UK.
"These figures show that because of oversupply, Group 3s remain the least profitable option. Growers should look at alternatives and take advantage of the opportunities available from Group 1s and 2s, because by growing a better balance of varieties to match demand for home and export markets, the overall average price received for UK wheat may increase, making us all more profitable."
