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Wheat Market Update - Monday 17th May 2010
UK and Europe Harvest Overview
London futures remain range bound at present but daily values continue to be influenced by outside markets and the financial plight of the European Union. The EU debt crisis has caused the Euro to fall to its lowest level in four years whilst the dollar strengthens, reaching levels last seen in April 2009. Traders are moving money away from the Euro and into the dollar because they’re concerned that Greece won’t be able to repay debts and Spain and Portugal could be the next victims to default on debt repayments.
The weaker Euro is offering support to European markets due to its continued competitiveness on world trade markets. Algeria bought 500,000t of European origin soft milling wheat on Friday 14th with France the rumoured origin.
UK spot markets continue to support demand from consumers and ports across the country whilst farmers are still holding out until the last minute before selling the remainder of their crop. A higher export program during the previous few months should help diminish some of the large carryout stocks originally expected. Bread wheat premiums have been supported in the south as availability of quality grades starts to become scarcer. Meanwhile, crops are looking in a reasonable condition but the cold weather and a lack of rainfall is slowing growth.
US/World Overview
A strengthening dollar put pressure on all U.S. commodities towards the end of last week with crude hitting three month lows. Fundamentals remain bearish amid ample global wheat supplies and large U.S. carry over stocks. There is little fresh fundamental news to take the market forward hence the reason traders are turning to outside markets for direction.
The latest USDA report was again seen as bearish. U.S. ending stocks for 2010-11 are set to reach a 23 year high at 27.1Mt, against 25.8Mt in 2009-10. Meanwhile, global ending stocks are forecast at 198.1Mt in 2010-11, up from 193.4Mt in 2009-10, and the highest level in nine years.
Summary
European economies are dominating the headlines at present amid concern over Greece’s ability to repay debts and the likelihood of Spain and Portugal being the next victims to default on debt. Hence, the Euro is taking a hit as investors move money away into the ‘safer’ haven of the dollar. A weaken currency is supporting European exports and wheat prices whilst a stronger dollar is putting pressure on U.S. commodities. With fundamentals unlikely to change in the short term unless there is a severe weather scare in the run up to harvest, traders will continue to look at outside markets for direction.
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