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Wheat Market Update - Friday 27th November 2009
UK and Europe Harvest Overview
Global wheat markets continue reacting to outside influences with London looking towards the European and U.S. commodity markets for direction. Wheat markets have largely divorced themselves from fundamental drivers and instead, index and capital money flow (on the back of changing equity, energy and dollar prices) are dictating movements on a daily basis.
A weakening dollar value has encouraged funds to move large amounts of money into the spectrum of commodities in recent weeks as a hedge against inflationary pressure. Consequently, commodity futures markets have found support at current levels whilst volatility has increased. The sheer size of these outside markets and scale of money flow have been enough to move markets higher, regardless of bearish fundamentals.
Egypt has purchased 300,000t of Russian and French wheat in their recent tender which could be viewed as supportive for European markets. Black Sea and European wheat exports continue to be more competitive than U.S. wheat. However, export trade still lags well behind last year throughout Europe. Reports indicate that UK farmers still have 40% of their crop to sell.
US/World Overview
Heavy fund activity is keeping U.S. commodity markets supported which is spilling over onto global markets. Any movement in outside markets are having a direct impact on fund money flow into and out of commodity markets which is a catalyst for greater price volatility.
In their latest report the IGC (International Grains Council), an independent grain analyst, raised world wheat production by 1Mt to 668Mt in 2009/10, down19Mt from the previous year, but still reflecting the second biggest harvest ever. Forecast world wheat plantings at 222million hectares, although lower by 1.5mh, are still 2% above the five-year average.
Summary
Current fund activity is continuing to offer support to wheat markets whilst money flow is aiding volatility on a daily basis. This is likely to continue in the short term due to a bearish dollar outlook. However, funds can be just as aggressive moving money out of commodity markets as they have been putting it in. When this happens we could see a quick correction in wheat values. The only difficulty is trying to predict if and when this will happen.
Wheat Market Update - Friday 13th November 2009
UK and Europe Harvest Overview
London futures values appear range bound at present with daily price movements influenced by currency, external markets and speculative money flow. Meanwhile, consumers appear to be fairly well covered pre Christmas whilst farmers are holding out for more attractive post-Christmas prices thus physical trade remains thin.
Strategie Grain released their latest European production estimates on 12th November, pegging EU-27 production for 2009/10 at 129Mt, against 140Mt last year. Carry-in stocks are forecast at 18.6Mt, an increase of 7.4Mt from last season. Meanwhile, latest estimates of the UK wheat planting area for 2009/10 have been pegged at 2.02Mha, up from 1.80Mha with the increase being at the expense of a reduction in barley plantings. Favourable weather conditions this season have allowed for quicker planting progress.
Meanwhile, Defra published their latest UK Supply & Demand estimates on 4th November, placing UK production at 14.18Mt this year, against 17.23Mt in 2008/09. Carry-in stocks were seen 60% higher at 2.76Mt.
US/World Overview
U.S. wheat markets remain volatile at present and daily trades are fluctuating significantly on speculative money flow and currency movements. Encouraging economic data and a weakening dollar have led to fresh inflationary fears which have encouraged investors to move funds into agricultural commodities. There appears to be a good amount of support at these levels and any fresh bearish fundamental news seems to be disregarded.
Another bearish USDA report, released on 10th November, had little impact on grain market values. Despite a reduction in total U.S. wheat production by 0.1Mt, the U.S. carryout stocks were increased by 0.5Mt resulting in a stocks-to-use ratio of over 40%. Corn production was decreased slightly whilst soyabean production was raised by 1.9Mt. Recent weather concerns surrounding the row crops in the U.S. have all but disappeared and any yield penalties appear to have been minimal.
U.S. and European wheat continues to be uncompetitive on world markets supported by the latest snub by Egypt purchasing 295,000t of Russian wheat in a recent tender.
Summary
London futures are trading within a given range at present with daily movements driven by outside markets and currency fluctuations. Fundamentals remain bearish in the medium and long term but are continuing to be ignored by fund investors. Meanwhile, U.S. and European wheat export prices remain uncompetitive against the Black Sea region.
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