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Wheat Market Update - Friday 28th March 2008
EU/US Wheat Overview
The recent turmoil in global financial markets was the signal for significant
‘fund liquidation’ in soft commodity positions. Wheat fundamentals
have been forcedDear Sir or Madam, to the sidelines, and this recent
fund money impact on the market can perhaps be seen as a pre cursor
for similar events in the months to come, which as we have seen all
season will continue to fuel price volatility.
US and EU wheat prices have fallen from recent highs, in the UK LIFFE
May wheat futures are currently £180 compared to £194 a
month ago.
Physical wheat values however have not completely followed the fall
in futures, as premiums for quality wheat remain firm, coupled with
a lack of fresh farmer selling.
Traders continue to calculate the tightness of UK Supply and Demand
figures as we enter the last quarter of the marketing year.
Price volatility can still be expected in the lead up to harvest, as
we continue to see export enquiries on a weekly basis from notably North
Africa/Iraq/Turkey.
New Crop Prospects
Growing conditions across most of Western Europe continue to be favourable,
however there are some concerns over likely final production in China
(worst drought for 5 years),and some dryness in key production areas
of the US.
As reported before, globally traders are expecting a wheat crop of
c.650mt,and currently optimism is growing that final production will
reach this figure.
It is however worth remembering how quickly the situation changed last
season between April and harvest, and it is widely expected that New
crop prices will not be discounted until the crop is ‘in the barn’.
On Monday the USDA release its latest estimates for prospective plantings
and quarterly grain stocks.
The timing and content of this report should give some clearer price
direction to the market, however weather patterns over the coming months
will also be crucial to final production.
Summary
The recent ‘fund liquidation’ of wheat futures positions
following the financial crisis in the US has highlighted the volatility
that has been one of the key features of grain markets globally this
season.
The flow of fund money ‘in and out’ of soft commodities has
also highlighted how fundamentals can be pushed aside very quickly.
Global weather conditions across the globe should be the key price
driver over coming months as the market contemplates the convergence
of old and new crop prices.
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