|
Wheat Market Update - Friday 16th January 2009
UK and Europe Harvest Overview
Traditionally market activity between Christmas and New Year is very quiet with trading kept to a minimum and staffing levels low. Not this time however!
UK Liffe wheat futures traded sharply higher over a 2 day period after Christmas leaving many wondering why, especially as there appeared to be widespread agreement that the fundamentals remained unchanged. The unusually high volume of trade has since been attributed to some fund money returning to the markets coupled with renewed interest in forward cover from feed compounders.
Sterling has remained weak, although off its low during this period which has continued to keep UK exports competitive.
May Liffe wheat futures have risen £10/t and are currently trading at c.£117/t.
Farm selling of feed wheat has increased sharply but breadmaking offers remain thin and continue to support the view that premiums will remain at their current high levels for the remainder of the season.
New crop prices have also risen and appear to have found a new level of support at the current November Liffe futures price of c.£125/t.
Weather is becoming a price driver with extremely cold weather across central and Eastern Europe posing a threat of winterkill to crops in regions not protected by snow.
To what extreme the lift in old crop prices has added to new crop support remains to be seen but for the time being any dips in either old or new crop will be seen as opportunities to extend cover, all of which will provide support to prices being maintained at current levels.
US/World Overview
The sale of a cargo of UK feed wheat to China has surprised the market but highlights the competitiveness of UK wheat and the weakness of World freight markets.
The latest USDA report had a negative impact to US futures as increased stocks and lower demand were reported.
Like Europe extremely cold weather has been seen in parts of the US with the usual market support for prices initially seen, as sentiment prevailed.
Talk that winter wheat would be harmed by sub zero temperatures at a time when crops do not grow has puzzled many, but year after year we see how fickle some sentiment can be.
Of more interest is the return of some fund investment in commodity indices highlighted by DOW Jones seeing an increase in wheat weighting of 1%.
A sustained rally in US markets would however appear unlikely as Dollar strength continues to weigh heavily on the competitiveness of US wheat.
Summary
A continuation of the weaker markets seen during the first half of the season would appear for the time being to have disappeared.
At a time when trading activity is normally low the market has been driven on to higher levels not seen since September of last year.
The market has created for itself a degree of uncertainty as whether this rise is sustainable, but fuelled by domestic demand in the UK, there now appears to be a consensus that the ‘lows’ for the season have come and gone.
| 
