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Wheat Market Update - Monday 21st June 2010
UK and Europe Harvest Overview
Over recent weeks further rain across the whole of the UK has quelled certain market fears about drought entering this crucial growing period. Current market movements in London LIFFE wheat are still being dominated by currency which seems set to continue until the quality and yield of the forthcoming harvest is clear in the next couple of months.
On the continent in the last few weeks Europe has had a substantial amount of rain causing some flooding issues. Most of the problems have been centred on the South of France which is predominately a grower of corn and not wheat. There are also flooding concerns in Eastern Europe with Poland experiencing their worst floods in decades. As this problem develops specific attention will need to be paid to quality concerns and disease issues from Polish wheat.
We are also seeing further encouragement coming from Germany, with DRV, the association of German farming cooperatives, increasing their estimate of the 2010/11 winter wheat harvest to almost 25 million tonnes, representing a 0.3 percent increase year-on-year.
US/World Overview
The problems currently facing the Canadian crop are having a major impact on the world market, in view of its significance to the overall global position, being one of the larger exporters. Flooding across their main growing regions has caused the loss of up to 12.5m acres, which will drive down the harvest yield sharply from last year. The Canadian Wheat Board expect their main growing region’s all-wheat crop to fall by 22% year-on-year to 18.9m tonnes, thus resulting in the smallest western Canadian crop since 1971.
The problems in Canada, coupled with increased activity in the international tender market, have offered further support to grain values. South Korea has been active purchasing over 300,000 tonnes of optional origin feed wheat in private tenders. This is in conjunction to the Saudi Arabian 990,000 tonne tender which expired on Friday evening with the outcome looking to have favoured German and Canadian wheat, although price and volume to each location yet remain unknown.
The next big influence on commodities in general in the short term will be China’s central bank having signalled at the weekend their intention to allow its currency to have more flexibility. As the Yuan strengthens’ it will cause the US Dollar to weaken which, all other things being equal, would lead to the US grains markets gaining strength. This change will have a big impact on China, making their exports more expensive and, conversely, imports cheaper. In the medium term this is likely to have an impact on our markets as a result of the Chinese being able to pay more for commodities.
Summary
International grain markets are still being buffeted by macro economic factors, such as currencies and the state of the recovery, although fundamentals are starting to take centre stage with the impact of the Canadian flooding problems hitting the markets.
Wheat Market Update - Friday 4th June 2010
UK and Europe Harvest Overview
Following the much needed rain over the Bank Holiday weekend we have seen a correction in the London LIFFE futures market, falling £5 in the space of two days. Traders have become more optimistic over yield prospects, although in some areas more rainfall is still required. Old crop wheat has not fallen as dwindling supplies are in good demand.
In addition to the rainfall, the swift market movement can also be attributed to the strength of sterling due to continuing ongoing concerns over European debt levels. New crop bread making wheat premiums remain firm, and will remain so until harvest quality is known.
The HGCA this week estimated 2009/10 ending wheat stocks at 2.09 million tonnes, which is 24% lower than the 2008/09 stocks. They also increased the exportable surplus to 2.31 million tonnes from 2.21 million tonnes.
US/World Overview
Egypt has purchased wheat for late June and early July in two recent tenders. They continue to favour Black Sea wheat, with Russian wheat accounting for the entire first tender (180,000 t) and 120,000 tonnes of the second tender, although France did secure 60,000 tonnes in the second tender. Egypt continues to review and have tightened their buying terms and conditions, with Russian wheat appearing to hold the upper hand at current price levels.
The first corn shipment from the US to China in four years leaves this week, and there has been a total of 600,000 tonnes sold so far this season with rumours of potentially more sales to be made. Over recent months this new demand has been providing much of the bullish sentiment in the US Grains markets.
The 2010/11 wheat and corn crops in the states are looking very healthy, with planting progress and emergence above the 5 yr averages. At present these factors indicate bumper crops.
Summary
Macroeconomic factors at present have been asserting more influence on the global grains markets, as fundamentals have had to take a back seat. However we are at the time of year where weather plays a major influence in price direction as we look for the crops to be made and secured. Therefore, volatility is expected to continue as the markets react to new news.
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