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Wheat Market Update - Tuesday 23rd December 2008
The 2008-2009 crop year, the story so far….
Back in early July, as we approached harvest, the picture was one of bumper wheat crops and widespread optimism over good quality potential.
November 2008 LIFFE futures having traded at c.£150/t at the beginning of the month, closed the month £20 lower, as expectation increased that a big crop was imminent.
As the combines began to roll in early August on farms in the South East of England those expectations looked like becoming a reality.
Mother Nature, however, began to play her part and widespread rainfall meant a prolonged harvest for many, and more crucially, a dramatic week by week decline in harvested quality of milling wheat.
LIFFE feed wheat futures prices responded very quickly to expectations of a high yielding/lower quality crop and the November 2008 position, by the end of September had dropped to c.£100/t.
As it transpired, with less than 5% of the 2008 crop achieving full breadmaking specification, milling wheat premiums soared, and by the middle of October breadmaking wheat into Liverpool was trading at c.£155/t, a £60/t premium over LIFFE wheat futures.
Bumper crops were also recorded across most of the EU, and with the UK contributing a c.17.3mt crop, EU production has been estimated this season to have reached c.140mt (v 112mt 2007).
The increased production of feed grains available continued to pressurise EU wheat futures lower during November with UK values falling below £90/t.
Outside markets continued to weigh heavily on commodity indices and as the economy rapidly slipped into recession, coupled with the collapse of crude oil prices, wheat prices remained vulnerable.
UK Feed wheat found export interest from the US and, to date, it is believed that two or three large cargoes have been traded.
As we entered December renewed interest in bread making wheat, coupled with a further weakening of Sterling, saw premiums rise once again and UK futures climbed back up close to £100/t.
So as we approach the end of the year, it remains to be seen what the price action is likely to be for the balance of the season. There is a growing sentiment that we have seen the ‘lows’ for the season and, with Sterling set to remain weak, the UK seems well placed to continue to be competitive in export markets.
Bread making premiums look set to remain firm for the remainder of the season and with increased demand likely to return to the market from traders and processors alike, prolonged Sterling weakness, pushing imported values higher could herald a further rise in quality premiums.
Merry Christmas and a prosperous New Year to all our readers.
Wheat Market Update - Wednesday 3rd December 2008
UK and Europe Harvest Overview
The upward momentum returning to futures values two weeks ago proved to be short lived and the May 09 LIFFE wheat value has slipped back to c.£97/t, which is just above the contract low.
Export markets have slowed and the negative sentiment seen in UK futures has also been supported by weaker oil and equity markets.
Physical wheat premiums have firmed in nearby positions as demand from processors and merchants has increased at a time when farm selling falls quiet as the holiday period approaches.
Bread making premiums look set to remain firm as we go into 2009.This view is supported by the most recent data released by the HGCA (Home Grown Cereals Authority) which shows that only 5% of the 2008 crop Group 1 samples analysed achieved full milling specification, compared to 7% in 2007,and 23% in 2006.
November 09 LIFFE wheat futures are trading at c.£108/t which is close to contract lows. Crop development over the winter will be key to further price movement as traders weigh this up against lower plantings.
US/World Overview
With outside markets continuing to impact grain and commodity movements, the US market in particular, is needing to increase its level of exports.
Excessive rain has downgraded some of Australia’s crop and could assist in supporting demand for US quality wheat. Early indications based on global wheat plantings being 5% lower for harvest 2009 are indicating global wheat to fall back to c.642mt compared to the c 682mt seen this season.
Summary
Globally wheat indices remain on the defensive with outside markets continuing to weigh heavily.
Premiums for quality wheat remain firm and with processor demand evident nearby and likely to continue into the New Year, this should continue.
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