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Wheat Market Update - Friday 19th May 2006
UK & Other Europe
• The tone of the cash market has become even more bullish for
old crop wheat, offers have dried up and the remaining wheat appears
to remain in the tight hands of patient sellers. Good feedwheat demand
is bolstered by renewed interest for milling wheat for June and July.
• Since early April, July LIFFE futures have risen £8, and
November £3.50.
• Cash premiums for wheat in old crop have been steady to firm,
meaning that the overall cost for wheat has risen by £8-£10
for both bread and biscuit.
• New crop cash premiums are a similar story. Farmers are very
reluctant sellers of new crop due to quality uncertainty prior to actual
harvest. That means that merchants have to absorb the risk for quality,
and consequently they are only “scale-up” sellers. With every
offer being slightly higher than the last trade, this translates into
prices that are up some £3.50 to £5.
• The U.K. old crop wheat carryover is currently a bit unclear.
March exports were 148k mt and the 9 month total is now 1.85 mmt. This
is in line to meet projections of nearly 2.3 mmt for the year. Some
merchants however, are starting to question the actual size of last
year’s crop, given what appears to be an extremely tight cash market.
• Current crop conditions across the U.K. look good. Whilst there
has been an excess of rain, most growing crops look to be in good condition.
However, talk is circulating throughout Europe that the harvest may
be a week or so later this year. That paints a scenario of even tighter
carryover stocks.
World
• U.S. Hard Red Winter wheat (HRW) areas continue to be stressed
from lack of moisture. Harvest has now begun in the most Southern growing
areas, and rainfall will no longer benefit Northern growing areas for
much longer. Futures have risen to a 9 year high recently and harvested
acreage is estimated by some to be the lowest since 1925. Technically
speaking, the market is overbought for the short term and subject to
profit-taking.
• U.S. Hard Red Spring wheat (HRS) futures are rallying along
with HRW, and have climbed nearly 15% since early April.
• Good export demand is supporting the nearby world market with
potential interest being shown by Iraq (1.5 mmt) and India (3 mmt).
• Some recent talk has circulated about dry conditions in Canada,
Argentina, and Australia. Although one has to wonder if this is not
premature and simply being promoted by traders holding long wheat positions.
• World wheat stocks are forecast to decline to only 20% of use.
Summary
Commodity markets in general are currently firm across the world. The
situation with wheat is one of steadily increasing prices over the past
weeks due to weather and good demand. No one knows whether the market
will pause or continue its rise over the coming weeks. It certainly
appears currently that old crop U.K. demand will limit any setbacks
over the short term. The new U.K. demand in the coming year for starches
and energy, plus the tighter estimated world carryover may also limit
setbacks in new crop, at least until new crop quality can be determined.
It is worth noting that wheat prices in the U.K. for the coming year
are substantially higher than those of a year ago. For example, as compared
to new crop ’05 prices (as of last August), new crop bread wheat
prices for ‘06 are currently about £13 higher, and biscuit
prices are about £14 higher. In addition to any price movement
between now and harvest, there will be further impact pending the harvest
quality.
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