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Analyst Insight: An update on the English wheat area

Tuesday, 30 April 2019

What is the English wheat area?

Following the decision by Defra to release two data sets for the English cropping areas, there have been questions regarding what the ‘true’ area is.

While each methodology has its merits, and no survey or dataset by their very nature is 100% accurate, the growing discrepancy between the long standing June Survey and the BPS data-set has continued to cause concern.

The June Survey:

A long standing survey of agricultural holdings, the June Survey is an annual survey with a sample size of 25,000 with around 15,000 respondents. A full census every ten years with larger surveys in-between. As a stratified sample, the results are scaled up for representative values. Owing to the sampling, there are margins for error and results are subject to variation.

BPS data:

This experimental dataset comprised of Basic Payment Scheme forms is only in its 4th year. In theory this method should have greater accuracy, owing to the potential penalties and checks for incorrect information being submitted.

However, the BPS area dataset is dependent upon farms making (accurate) claims, and the number of claimants has been declining year-on-year, from 87.5K in 2015 to 84.3K in 2018. As such an extrapolation is needed to account for non-claimants, and this could well be a potential source for the growing discrepancy and divergence.

Full explanation of the crop areas derived from the Basic Payment Scheme and the June Survey of Agriculture can be found here.

Why does this matter?

From a marketing perspective, the knowledge of the UK area allows all sides of the trade to quantify the supply and demand needs for the UK. Using this information, marketing decisions can be made for when to sell, buy or indeed make informed decisions for planting.

Without an accurate figure for all sides to use, the UK market loses some transparency, where price should be an accurate representation of supply and demand. As a potential market failure, it falls under the remit of AHDB to address this. As such, while in conversation with Defra, we have been working through two alternative approaches to the discrepancy problem.

Option one, reverse the Balance Sheet

On a very basic level, one way to calculate the area has been to reverse engineer the balance sheet to calculate a true production level.

Firstly we calculate the total demand and stocks from the balance sheet, making assumptions about fed on farm, ending stocks and exports. We then deduct imports and opening stocks, to be left with the production figure required to balance the supply and demand. 

Workings

We can then use the regional production from the rest of the UK to calculate an English area of 1.621Mha (using ADAS harvest yield of 7.85t/ha ). This method, while balancing well with demand and known stocks has a number of assumptions built in and is only being used as an indicative measure. 

Re-weight the Data?

Alternatively, we can use a combination of the two Defra area figures and asses why and when the two data sets have become miss-aligned and then adjust the areas accordingly.

While there has been an increasing divergence between the June Survey and BPS area data, looking back to 2015 there was a far closer agreement. Taking 2015 as a starting year, by re-weighting the BPS figures to account for the continued cropping area divergence and falling claimant number, a new weighted area can be derived (for more information on the full re-weighting methodology email Peter.Collier@ahdb.org.uk).

Using the reweighted methodology, an adjusted English wheat area stands at 1.646Mha. When re-weighted this is substantially above the reported BPS area, which at the time of Defra’s release did raise questions regarding the implications for a UK supply and demand position as talked about in a previous article.

UK Wheat Area Figure

Conclusion

While theoretical English wheat area figures of between 1.621Mha and 1.646Mha can be derived from either using the balance sheet to work backwards or by re-weighting the BPS figure, these are by no means a definitive English area. However, with the available data and domestic market premium structure these estimates ‘feel’ to be a more accurate representation of the UK.

The difficulty and questions posed by the divergent Defra data-sets continue as harvest is approaching. Without an accurate and trusted area figure for 2018, this can throw into doubt subsequent surveys for the 2019 harvest. With a more uncertain post Brexit trading future for 2019/20, an accurate and open supply and demand picture is perhaps more important than ever before.

Where next?

Through discussions and working closely with Defra, reviews are underway and answers and clarity should be gained. Defra are undergoing an investigation into the June Survey and also looking at the BPS dataset to ensure that the data is as clear and accurate as possible. At the time of writing, Defra have no definitive date for publication.

As and when this investigation is complete, Defra will publish a full report. If any amendments are required to the June Survey, these will be released at the same time. We will ensure to publicise this release once Defra have completed their work.

In the meantime, we have seen old-crop May-19 futures become ever more volatile and technical over the past week as the tender period is now underway, with large daily price moves late last week amid very low volumes being traded.

As such, with differing and volatile views on UK supply and demand becoming obvious, the futures market has been losing its relevance for old-crop physical grain pricing. We will place more effort on reporting prices from our weekly delivered survey and Corn Returns ex-farm survey to give clarity through to the end-of the season for old-crop markets.

Once the next balance sheet update is released at the end of May, we will also analyse this to provide a view on what the end of season has in store.

Dates

David Eudall

Head of Market Specialists (Arable)

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