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Wheat Market Update - Tuesday 12th August 2008
UK /EU Overview
Harvests in Germany and France are 80% complete with good yields being reported. The main problem being talked about is lower protein.
The UK harvest has been very slow to get going due to the wet weather and less than 5% has been cut at the time of filing this report. The first tests are showing good hagbergs and specific weight with variable proteins but not enough of the crop has yet been seen to get a clear picture of quality. With weather forecasts showing continued showers, we will be lucky to see much, if any, more wheat cut this week. If the rain continues beyond the weekend we would expect to see hagbergs start to fall in the south where crops are already ripe.
Milling wheat premiums are widening as a direct result of poor harvesting weather in the UK and reluctance by merchants to sell any quality wheat ahead of the crop. They are quoting big premiums to cover the risk of full specification quality not being achieved by growers.
November 08 LIFFE (futures) have now dropped to £122 as a result of expected bigger yields and poorer quality. We have not seen values down at these levels since November of last year but, as previously mentioned, quality premiums are widening to make the flat price higher.
Competitively priced feed wheat from the Ukraine and Black Sea region continues to put pressure on the European feed markets including the UK.
US and World
Harvesting of winter wheat in the US is nearing completion with good yields and adequate protein levels. Spring wheat harvest has also commenced with 10% combined thus far. Chicago Board of Trade futures are sharply lower with bigger yields in the US and more to come in the rest of the world. Corn and soybeans have also had a bearish tone dragging wheat with it.
Australia continues to receive favourable rains, topping up the soil moisture but the next two months precipitation is crucial for the crop to establish, develop and build itself towards the predicted 22 to 25mmt.
Summary
A sell off in outside markets such as oil and metals has added to the downward pressure in the US commodity markets. The recent strength of the dollar has made the purchase of US goods more expensive to the rest of the world which is also weighing down the markets.
We still await the UK crop with proteins expected to be lower and hagbergs lower also if the rains persist. Hence, we are firmly in a ‘weather market’. Bread making premiums remain high and have scope to move higher if crop quality deteriorates.
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