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Cereal S & D trends
Published August 2011
Wheat and maize relationship and GM implications for cereals
Maize threat to the UK
In 2008 the highest yields of grain maize in the US were over 20 t/ha; it is clear that maize is potentially a threat to UK feed grain markets since approximately 50% of the UK wheat crop is used as animal feed and there is little discrimination between grain sources. However, it is not all one way; the increase in maize production is also potentially good news for UK wheat producers if, as has occurred in the US, the premium for wheat over other grains continues to increase as relative wheat supply falls.
Relative crop areas
The total world area of maize has shown a steady increase for at least the last 40 years. In contrast, the area of wheat has declined since the mid-1980s. The increase in the maize area has been at the expense of wheat and barley.
World maize and wheat areas (‘000 ha)
However, the pattern of increase is not consistent throughout the world and, for example, the increase in maize area in the US is dramatic, while the area in Europe has shown a small decline. This is despite historically high EU maize prices relative to wheat, while US wheat has consistently achieved a premium over maize.
US and Europe maize and wheat areas
US maize area increase
For the foreseeable future, maize is likely to yield more than wheat. Maize is a semi-tropical plant, and under warm conditions and drought, is more efficient at capturing sunlight than wheat. (Maize has a C4 photosynthetic pathway rather than C3 as used by wheat). The obvious driver for change in area is change in relative yield. US maize yield has increased relative to wheat, while the European yield has remained static.
Yield maize/wheat (%)
Source: USDA analaysed InsideTrack
While this might be expected to explain the difference, the relative price change over the last 10 years counteracts the yield gain (although recently it has been erratic). Prior to 1999, the price difference was more volatile with no obvious trend, although wheat still traded at a premium.
Wheat premium over maize (CBOT nearby daily prices ($/t))
Source: CBOT analaysed InsideTrack
The recent increase in relative price volatility reflects the tightening supply and demand balance for all grains, but with an overall grain shortage following the 2006 harvest, followed by a more wheat specific shortage after the 2007 harvest. The annual increase in premium for wheat and the average relative increase in yield per year are both around 1.6–1.8% over the 10-year period, so there would appear to be only a small incentive for most growers to swap to maize.
However, this ignores the cost of production. In the US, wheat production is generally a low-cost operation while maize is more expensive. Maize will nearly always be more expensive than wheat to produce, if for no other reason than the cost of seed. But there has been an extraordinary change in the relative cost of establishment.
US wheat costs as percentage of maize costs
Source: USDA analaysed InsideTrack (e=estimated f=forecast)
The most striking feature is that the costs of wheat and maize production have converged since 1998. This is particularly true of operating costs. The detailed figures show that labour and repair costs have narrowed considerably. The reason is likely to be a swap to reduced cultivation systems for maize (as is usual for wheat). These were originally encouraged for reasons of soil erosion, but only really suit those areas where lack of soil moisture is an important factor, largely the south and west of the maize areas. In the more northern areas, ability to get on the land in the spring is more critical, and conventional cultivation is more important.
According to GMO Compass (www.gmo-compass.org) a pro-genetic modification information site, approximately 73% of the US maize area in 2007 was genetically modified (GM). There are two main modifications in use: protection from above-ground pests (e.g. various corn borers), and resistance to glyphosate. More recently genetic modification has also provided protection to some below-ground pests (e.g. corn root worms). Most varieties provide more than one trait.
While spray costs have reduced, as might be expected from the GM traits, the combined seed and spray costs have actually increased, both in real terms and also relative to wheat.
The real benefit has been to make direct drilling easier to manage and potentially allow a greater area to be drilled earlier and with less labour than would otherwise be possible. In more continental areas, maximisation of season length is a key determinant of yield, although it is worth noting that the late drilling in 2008 still resulted in a record yield.
US maize and wheat seed and spray costs ($/ha)
Source USDA (e=estimated f=forecast)
GMO Compass states that, in contrast to maize, there are no commercially-grown GM wheat varieties in the world, although Monsanto did develop a glyphosate-resistant variety and applied to the US and Canadian governments for approval. However, the application was subsequently withdrawn.
According to a Syngenta spokesman, the potential gains and engineering costs for GM wheat and maize are similar. The reason for the lack of development in wheat appears to be commercial:
- Most maize is grown from hybrid seed and (1) has to be purchased annually and (2) is relatively expensive compared with farm-saved wheat seed. Thus the additional cost of GM seed is smaller for a maize grower than a wheat grower, and the breeder can be more certain of a repeat sale without having to rely on indirect remuneration such as through royalty systems.
- Once a GM trait is introduced into maize, crossing to introduce the gene into other varieties is a relatively simple step and no different from the field-scale operation used to produce hybrid seed (the anthers at the top of the plant (tassel) are widely separated from the stigmas (silk) on the cob). Crossing of wheat is a more technical process, since the stigmas and anthers are contained together in the glume. The production of new varieties by crossing, rather than reinsertion of the gene, has a much lower cost of obtaining approval and is a conventional process.
- Neither wheat nor maize varieties travel particularly well to new geographical regions. However, while commercially both crops have different markets based on the grain qualities, there is less differentiation for maize, allowing a greater area to be planted in any environmentally suitable area.
Maize varieties on average have a 5 – 6 year life in the US.
EU GM production
GM production is increasing in Europe. The UK has the fourth highest number of GM trials in Europe, with a similar number to Italy but significantly fewer than Spain and France. France withdrew approval for cultivation of insect-resistant maize varieties in 2008. The 2005 and 2006 plantings in Romania were soybean. The only approved GM in the EU is a 10-year-old maize insertion conferring resistance to stem borer, although there are 70 approved cultivars containing the gene.
EU GM crop areas (ha)
|Total GM maize||54,959||62,284||110,050||107,719|
Source: Europabio quoted by GM Compass there are minor discrepancies between the source data and that provided by Europabio. *largely soybean
While France is the major EU maize grower, the non-GM growers, Hungary and Italy, are second and third biggest maize producers.
European GM approval process
- Submission made to competent national authority of the Member State.
- The national authority informs the European Food Safety Authority (EFSA).
- EFSA have 6 months to submit a report to the European Commission and Member State on the safety aspects based on information provided by the applicant as assessed by independent experts.
- The Commission have 3 months to propose recommendation or refusal to the Standing Committee on the Food Chain and Animal Health consisting of representatives of the Member States.
- The Committee may reject or accept on the basis of a two-thirds majority (individual Member States’ votes are weighted)
- The proposal is forwarded to the EU Council of Ministers where it is accepted or rejected on the basis of a qualified majority. However, if agreement is not reached within 90 days the Commission adopts the proposal.
Europe and the UK
While a little simplistic, the main threat to the UK wheat market is the importation of lower-priced grains to supply the animal feed and ethanol markets, where the cheapest grain source is likely to be the most used. In the US, and consequently in general (although not historically in Europe), maize is cheaper than wheat.
EU import tariffs are set at the same level for wheat and maize, and this consequently helps to maintain a relatively high price for maize compared with elsewhere. In addition, it is not so long ago when maize was sold into intervention in, for example, Hungary, while maize was imported elsewhere into Europe; the cost of transport from Hungary made the crop expensive to use and cheaper to import by boat: this helped to maintain the maize price. The suspension of the tariff in 2008 reversed the price advantage for maize and, despite reinstatement, maize is still frequently trading below wheat on the Matif market following the bumper maize (and wheat) crop in 2008.
Even in the UK, where distances are relatively small, road transport is too expensive to allow movement of grain from surplus to deficit areas. Once loaded onto a ship, UK grain is equally competitive with other exporters but vulnerable to being undercut with cheaper grains – as occurred in 2008 when wheat prices became high compared with other grains. To date, the slow adoption of GM varieties has helped to protect EU prices from imported maize. Thus, out of 56 maize GM modifications evaluated in the EU, only six are approved for import. Mixing of GM maize crops within the food chain by the exporting country makes import even more difficult.
Grain maize is unlikely to be grown widely as a major crop in the UK for some time and the few crops that have been grown have relied on a price premium rather than high yields to be justified. Drying is almost inevitable (as it is in many maize growing areas) and requires some specialist equipment.