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Wheat Market Update - Friday 28th December 2007
As we say goodbye to the unprecedented wheat price escalation seen
over the last few months of 2007, the big question is what price action
are we likely to see over the coming months as we approach the global
2008 harvest?
The key feature will be the degree of price volatility that will be
seen. Supply and Demand fundamentals remain tight, and as the months
go by the need for ideal weather for developing crops will become a
key focus.
With global stock levels at record lows, any inclement weather in key
crop producing countries could be the catalyst for prices to revisit
record highs seen back in September 2007.
Additional volatility will also be created globally by institutional
investors widening their exposure to soft commodities holdings, the
consequence of which could be waves of speculative buying or selling.
Bread making premiums look set to remain firm, supported by a continued
lack of volume farmer selling.
On the optimistic front, and weather permitting, the increased plantings
made this season should see global wheat production recover substantially
next season, but with demand also set to remain firm, it should not
be taken for granted that wheat prices will weaken significantly.
So in summary whilst 2007 saw price escalation at unprecedented levels,
the outlook for likely price action in 2008 remains volatile.
Wheat Market Update - Thursday 7th December 2007
UK & Europe
Firm US wheat markets continue to provide direction for European futures
at present. Volumes remain lighter than normal, with the continued lack
of farm selling activity contributing to this. Any dips seen on a daily
basis have been limited due to continued uncertainties over this season’s
supply tightness.
Export progress has slowed recently, and although port silos are full,
expectations of renewed interest from Egypt and other large importers
continues to provide underlying support to values. Bread making premiums
continue to remain firm.
World Wheat
US futures have sparked into life following an increase in the suspension
period for wheat exports announced by Argentina due to ongoing concerns
over possible frost damage to the crop. Dryness remains a concern in
the Great Plains and the market will remain extremely sensitive to any
potential weather concerns over coming months.
Australian production forecasts have been increased slightly to 12.7mt
(9.6mt in 2006). Canada has revised lower its production forecast which
has also contributed to firmer US futures values.
Summary
Old crop prices remain susceptible to ongoing discussion regarding
supply tightness leading into the second half of the season. New crop
prices have solid underlying support currently, and remain well discounted
to French values.
Physical new crop levels still carry a large ‘weather risk’
premium at this stage, which will likely remain in place until traders
are confident that global production increases next season will materialize.
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