COMMODITY PREMIUM ANALYSIS

Introduction

Agricultural commodities such as wheat can be sold at different quality levels. For example, wheat is sold as at a number of levels (or grades) depending on it's specification that set what the wheat can be used for in food production, from premium milling wheat down to wheat which is only suitable for animal feed.

Commodities with that fall into better grades are generally traded at a higher price than feed quality commodity. For example, below is the weekly corn returns pricing data extracted published by AHDB which shows the observed trading price of Feed Wheat and Bread Milling Wheat over time at a UK wide level.

By taking the difference between these two values, we can calculate the commodity grade premium over time.

How does this compare to commodity premiums on Hectare Trading?

We can calculate the commodity premium on Hectare Trading by taking the average difference between feed and grade 1 milling prices on days where we have prices for both grades. Where both prices are ex-farm and are a fixed-value (rather than feed pricing plus premium based on specification).

We can then plot the AHDB Corn Returns premium and the Hectare Trading Premium over time.

We expect some noise in this data, as buyers often express premiums and other pricing details in the notes. Likewise, sellers sometime list at higher grades than the crop specification calls for.

Overall however, we can see that the commodity premium on Hectare Trading is tightly coupled with the AHDB corn returns data. Meaning that we should be able to the AHDB corn returns as a continuous value of premium for price predictions on Hectare Trading.