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Wheat Market Update - Wednesday 28th October 2009
UK and Europe Harvest Overview
London feed wheat futures continue to take direction from U.S. commodity markets at present but ample wheat availability, favourable Australian crop prospects and a lack of export trade continue to weigh on markets.
Physical trade remains thin although it is likely that selling activity will increase over the coming months. November is a traditional selling month for farmers who have finished all new crop drilling and are looking to sell for cash flow reasons and fertiliser purchases. However, consumers don’t appear to be desperate to cover too far forward and are choosing to sit on the sidelines and evaluate the current spike in volatility.
Attention will start to focus on new crop plantings. Early reports point to higher wheat planting figures across Europe which will come at the expense of a lower barley area. Crop establishment in the UK will have been aided by favourable weather conditions but reports of dryness in Ukraine may lead to problems later in the season.
US/World Overview
U.S. wheat values are currently at the mercy of external markets, weather forecasts and currency movements with traders continuing to disregard the real fundamentals. Uncertain weather conditions surrounding the soyabean and corn harvest have been offering support recently, however, this has diminished slightly on better weather forecasts for the weeks ahead. Harvest is still running well behind average and is now beginning to impact SRW planting progress, which usually follows soyabean and corn crops. The latest USDA harvest progress report estimates soyabean harvest progress at 44%, against the 10 year average of 82% whilst corn plantings are at 20% complete, against the 10 year average of 64%. Corn harvest progress may now be at its slowest pace on record.
Meanwhile, volatile equity, crude oil and Dollar values are spilling over into all commodity markets with speculators continuing to move their money around causing greater uncertainty. A rising market encourages investors to short cover or hedge against inflationary concerns which further supports market values whilst a falling market encourages profit taking and short positioning which leads to further downward pressure. This end result is a rise in market volatility.
U.S export sales were again disappointing. Total inspections for this year stand at 38.7% of the USDA’s projections against a 5-year average of 44.3%.
Summary
Global markets remain volatile at present with values moving significantly on a daily basis and the London futures market continuing to track European and U.S. values. The slow pace of the soyabean and corn harvest, sharp Dollar movements and speculative involvement still has the potential to support markets. However, all fundamentals remain bearish and even the recent U.S. export sales report lags well behind the average for this time of the year. One thing is for certain though; volatility is here to stay in the short term.
Wheat Market Update - Friday 16th October 2009
UK and Europe Harvest Overview
London feed wheat futures remain volatile at present with daily values influenced by Sterling movements, merchant short covering, and external markets. Fundamentals remain bearish in the medium to long term but continue to be ignored at present. The recent price spike has encouraged more physical spot and forward selling by farmers looking to manage their risk however, it may be a struggle for them to find buyers.
Wheat planting is nearing completion across much of the UK and the recent rainfall will have aided the first stage of the new crop cycle and help dispel some earlier crop failure worries. Early reports suggest that wheat plantings could be higher this year, at the expense of barley, which could see wheat production increase next year if trend yields are achieved. Defra’s latest UK wheat production for the 2008/9 crop is now estimated at 14.2Mt.
France’s Agricultural Ministry have cut their latest soft wheat estimate by 1Mt to 36.6Mt but ample stocks throughout Europe should more than compensate for this shortfall.
US/World Overview
Recent weather concerns surrounding the corn and soyabean harvest, a weakening Dollar and new money inflow from investors looking for an inflationary hedge have been supporting markets in the U.S. The situation in the medium and long term hasn’t changed and fundamentals remain bearish but these are largely being ignored at the current time.
Southern Hemisphere crop prospects continue to improve and earlier weather concerns now seem to have passed. Australia Crop Forecaster has increased their latest Australian 2009/10 wheat production estimate from 22Mt to 23.1Mt, saying rain helped boost yields. If this figure is realised it will be their highest wheat production level since the 25.1Mt crop in 2005/06.
Summary
Global commodities seem likely to remain volatile in the short term, continuing to react to currency movements, short covering and external markets. Meanwhile, long term values will be driven by new crop planting estimates, signs of economic recovery, changing oil and equity markets and major weather events.
Wheat Market Update - Thursday 1st October 2009
UK and Europe Harvest Overview
The harvest is now complete in the UK and quality looks to be only slightly higher than average this year. Farmers are now busy planting next year’s wheat crop into very dry seed beds. A good amount of rainfall over the next few days and weeks will be essential to aid the initial plant forming process.
LIFFE feed wheat futures appear to have found some support at current levels with day to day price movements being attributed to currency swings, external market influences, merchant short covering and a continued lack of farmer selling. Currency has been the biggest influence lately with a weakening pound offering support to LIFFE values whilst farmers continue to hold onto their crops in the hope that prices will increase enough to cover their perceived input costs. However, there could eventually come a point where they are forced into selling for cash flow reasons rather than a commercial benefit.
US/World Overview
Existing fundamentals and continued bearish news in the market makes it difficult to believe prices will stay supported at current levels or move higher in the medium to long term. The latest IGC (International Grains Council) report sees world wheat production increased by 8Mt to 662Mt whilst the USDA (United States Department of Agriculture) increased their quarterly U.S. wheat stocks in their latest report. Meanwhile, Egypt’s latest tender for 150,000t of entirely Russian wheat, reaffirms a lack of EU and U.S. competitiveness against the Black Sea regions.
Southern Hemisphere wheat crops have benefitted from recent rainfall and any concern about adverse weather conditions due to El Nino have not yet been realised. Various reports indicate that the Australian wheat crop has passed through the key yield forming period with analysts now forecasting a minimum crop size of between 21 and 22Mt. Crops could carry on benefiting from favourable weather conditions but as it stands Australia has the potential to export as much as 16Mt if these early estimates are reached, which if realised, could be the highest level in 4 years.
Summary
Bearish fundamentals and a lack of bullish market news are offering limited reason for futures to trade higher in the medium to long term. Large carryout stocks, a lack of consumer demand and favourable weather conditions in the Southern Hemisphere are all restricting any large upside price movement. However, recent currency volatility, a lack of farmer selling, merchant short covering and external market spill over have all been influencing day to day market movement. This is likely to continue with volatility remaining and downside and upside movements in the short term persisting.
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