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Wheat Market Update - Friday 24th November 2006
UK & Europe
Stability and support continue for UK and European wheat prices. Weather
conditions in Northern Europe have been favourable for the developing
crop, but adverse reports could spark a lift in prices with global ending
stocks at record low levels.
Export demand has continued with Egypt returning to the market this
week buying 120000t of French wheat.
Last week the announcement of a new bio-ethanol plant processing 1.2
million tonnes of wheat, to be constructed at the end of 2008 on Teeside,
has also provided some longer term support for wheat prices.
World Wheat Summary
Australian wheat yields are worse than expected, especially in Western
Australia. Production is still estimated at 9-9.5mt, but could be lower
still as harvest continues.
Egypt purchased 60000t from the US this week. However the US markets
are generally quiet due to the Thanksgiving holiday.
US markets will continue to focus on any global production concerns.
Already, extremely dry conditions in Central US Key Wheat Areas have
been highlighted, as well as drought conditions in areas of China.
Prices have consolidated over the past few weeks, but it continues
to be widely expected that a demand driven rally will return at some
point in the New Year.
Wheat Market Update - Friday 17th November 2006
UK & Europe
Wheat prices have settled into a range over the last two weeks, as
little fresh news has surfaced to significantly move the market.
Processors appear to have adequate cover to take them to the end of
the year, but will need to return to the market soon for January onwards.
This demand could lead to prices revisiting contract highs that were
seen a month ago.
Farmers have sold a significant proportion of their wheat, and will
be reluctant to sell again until the New Year. Additional support for
prices is also likely as a consequence a tighter UK Supply and Demand
figures.
Working on an industry average for the UK wheat crop of 14.7million
tonnes, the exportable surplus of 1.7million tonnes should comfortably
be shipped this season. With approximately 1million tonnes estimated
to have been exported by the end of December.
In the short term a demand driven rally in prices looks possible as
processors return to the market.
World Wheat Summary
Global stocks need to be replenished, and the market has to absorb
rising demand.
The Australian harvest has just started but it is too early at this
stage to predict if the crop is lower than the current estimate of 9-10
million tonnes.
Any global production concerns that become apparent over the next few
months for the 2007 harvest will provide further price support.
Wheat Market Update - Thursday 9th November 2006
World Wheat
It is worth reflecting on the reasons behind the sharp increase in
global wheat prices, caused primarily as a consequence of the significantly
lower global production seen over the last few months.
During June and July the US spring wheat crop suffered extremely hot
and dry conditions resulting in a severe reduction in total production.
In Europe, although in general quality is good, some areas produced
much lower yields than expected, significantly reducing the overall
production. Towards the end of August extreme drought conditions were
occurring in Australia, subsequently the overall forecast production
was significantly cut. In addition to the reduced availability of wheat
in the UK, EU and the rest of the world, a poorer quality crop in the
Ukraine, and the implementation of export restrictions from this province,
further reduced the availability of wheat on the world market.
In September the IGC (International Grains Council) published figures
highlighting that global ending wheat stocks will be at their lowest
level for over 25 years. This situation provided the catalyst for further
increases in world wheat prices, which have since been continually supported
as the forecast world wheat production has reduced.
Latest official estimates are that the Australian wheat crop will yield
only 9-10 million tonnes, compared to 25mt last season. Although some
private forecasters are predicting less than 9 million tonnes.
World production is now estimated at just 585 million tonnes, compared
to 618 last season. Consumption is estimated to be 607 million tonnes,
reducing ending stocks by 19 million tonnes. The continued buying support
and high wheat prices certainly reflect this supply and demand picture.
It is expected that wheat plantings will increase for the 2007 harvest.
However, with very low world stocks the market remains extremely wary
of any potential production concerns as we follow the growing season
through to the harvest next year.
Summary
Putting the above into context, UK bread wheat prices are some 40%
higher than a year ago, and 15 % higher than they were just 3 months
ago.
With the UK experiencing much smaller production and exportable surplus
this season, prices look unlikely to ease back. Certainly until traders
can be sure that the 2007 new crop conditions around the world are favourable
enough to rebuild global stocks.
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