UK cereal supply and demand: operating stock requirement

The estimates of UK cereal supply and demand are for each crop marketing season, which runs from 1 July to 30 June.

While the crop marketing season begins on 1 July, in most years grain from the new harvest isn't available immediately. But processors still need grain to operate during that time.

We use a calculation to give an indication of the smallest amount of wheat and barley needed in this period.

The ‘estimated operating stock requirement’ was first introduced for the 2011/12 season.

Including this figure in the balance sheet has two main benefits:

1. To help understand what part of the balance between supply and consumption is needed for early-season operating. This, in turn, gives more insight into what grain could be available for export or as 'free stocks'.

2. It removes the need to estimate closing stocks using assumptions.

Free stocks are those held over and above the 'estimated operating stocks requirement'. They are held for commercial reasons and depend on an individual’s view of the market.

The split between grain for export and grain held in free stock will depend on several factors including:

• the price competitiveness and quality of UK cereals
• the premium between old and new crop
• price developments through the season

As the season progresses and more data becomes available, the split between exports and free stocks can be forecast. 

The estimated operating stocks requirement is based on early-season usage of wheat and barley by grain processors.

To estimate the operating stock requirement, we use five years of usage data. This includes cereals used by:

• GB feed compounders and Integrated Poultry Units
• UK human and industrial sectors, such as flour millers, brewers, maltsters and distillers

The time between 1 July and when the new crop can be used varies by type of user. So, the amount of time included in the calculation for each type of user has been agreed with industry.

The number of months' data used in the calculation is as follows:

• Millers: wheat usage from 1 July to 16 August, 1.5 months
• Brewers, maltsters and distillers:
  • Wheat usage from 1 July to 7 August, 1.25 months
  • Barley usage from 1 July to 31 October, 4 months
• Animal feed usage
  • Wheat usage from 1 July to 7 August, 1.25 months
  • Barley usage from 1 to 31 July, 1 month
• Other usage:
  • Wheat usage from 1 July to 7 August, 1.25 months
  • Barley usage from 1 to 31 July, 1 month

The five-year average figures for each user are combined to give the estimated operating stock requirement.

As the estimates are based on past cereal usage, they do not allow for new production. So, an allowance will be made for any new plants expected to come online during the season.