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Harvest Update - Monday 25th July 2005
UK Market
There have been isolated trial wheat cuttings in the southeast of England
but it is much too early to form an opinion about quality or yields.
Expect next week to be one of more random cutting, and the following
week for the harvest to start in earnest.
It still remains to be seen how the farmer will market this year’s
crop. There are mixed opinions some of which state that, due to the
Single Farm Payment likely not to be paid until next spring, there will
be a lot of early sales. Others have commented that part of the reason
for the recent £2 rise in LIFFE is because of a lack of farmer
selling. Also supporting the futures rise has been the Euro against
Sterling, a slight reduction in the estimates of the French harvest
due to dryness, and (minimally) a sympathetic move tied to a stronger
U.S. market. The recent strength in North American wheat is tied almost
exclusively to the hot/dry weather impact on corn and maize. These markets
have reversed in the past two sessions and U.S. wheat futures are now
falling back. There is another round of hot weather forecast for the
US this weekend with highs predicted to be near 32ºC.
It remains to be seen what milling wheat prices will do this harvest
and into autumn. As mentioned above, LIFFE futures have climbed circa
£2 in the last 2 weeks. If harvest conditions were ideal from
here forward, if quality was good (like most expect at this time), and
if the farmer is a willing seller, then one would argue that the potential
exists for prices to ease from today’s levels. A bullish scenario
could come about if the exact opposite occurred coupled with a weaker
Sterling (vs. euro) and surprise export demand. Regardless of the outcome,
the current market now has all eyes focused on harvest, with almost
all old crop marketing having been completed.
World Market
The bulk of the U.S. winter wheat harvest is done and quality is generally
good. The spring wheat harvest will start in the southernmost growing
areas in late August. Expectations are for a good quality crop. French
harvest is progressing north and quality there is said to be good. Proteins
appear to be up on year ago, but yields look to be down on average close
to 10% by some estimates. Hungarian harvest has been rather wet and
some suggest that there will be a quality problem for intervention purposes.
Russian wheat is being priced aggressively in the market as evidenced
by the purchase of 60k mt by the Egyptians in a recent tender. Argentina
is still dry and in need of moisture for the last of the plantings.
Harvest Update - Monday 4th July 2005
UK Market
Old crop milling wheat supply and demand are waning as we now enter
July. There are a select few markets where old crop supplies are still
needed, but finding such at this late date is proving difficult. Old
crop premiums of £6-8 (over new crop) are common in these tight
markets for both bread and biscuit wheat. LIFFE futures are still mired
in a tight range for November and forward. Harvest milling premiums
are relatively steady, while farmers continue to watch from the sidelines.
The growing crop appears to be in good condition over most of the U.K.
The S.E. crop looks stressed in areas as it has been the driest region
across the country. Some weather forecasts for the coming month suggest
a normal seasonal pattern of wet weather.
World Wheat
Most of the areas said to have been dry over the last month have now
received beneficial rains. The Australian crop outlook is much improved
due to recent rains in the S.E. The U.S. has likewise had timely rains
for row (Soya & Maize) crop development. The U.S. rainfall has prompted
a sharp decline in soy and corn futures, which has in turn weighed on
wheat. Wheat harvest in the U.S. is wrapping up in the southernmost
areas and about 50% done in the heartland. Quality appears to be adequate
thus far. Moisture in the HRS areas of U.S. and Canada is more than
adequate. Actually, some drying out , heat and sun would be most welcome.
Higher protein wheat is still carrying a large premium and is likely
to be the case at least until the first HRS harvest.
World ocean freight rates merit watching as autumn approaches. Oil
is bouncing around between $56 and $60 per barrel and, while it hasn’t
driven rates higher, one has to be ever-sensitive about the potential
to spike the market. Most agree that to reach inflation-adjusted record
highs, the market would have to rally much closer to $90/barrel. U.S.
interest rates have risen another quarter point, and that has lead to
a strengthening dollar (increasing costs of N. American wheat for U.K.
milling). The outlook continues to be for more rate increases in the
coming month(s). The GBP is now approaching 1-year lows in the $1.77/sterling
range.
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