It has been a rollercoaster week for wheat markets as crop uncertainty and speculative activity continue to drive volatile price swings.
Futures markets saw a daily rise of almost £8/t at the end of last week, before losing ground later the same day. But prices were on the way up again as Farmers Weekly went to press on Wednesday (28 July), with Nov 2010 London futures having strengthened by almost £6/t on the previous day to reach £139/t, with £145/t available for next May.
Spot prices have followed the unstable trend, averaging around £123-125/t ex-farm by mid-week, with very little difference between old and new crop values as combines rolled into the first wheat crops in parts of southern England.
Openfield’s Mark Worrell said the “continuous drip-feed” of news about poor crops in various countries into an already nervous market was driving the volatile price swings witnessed.
The Ukrainian grain crop estimate was last week cut from 45.15m tonnes to 43.5m tonnes and about 20% of the Russian arable area has reportedly been lost due to drought. Its grain crop has been revised down by some 2mt, but wheat estimates remain unchanged at 49-51mt. There were reports that the Russian government would sell grain to domestic processors from its stocks to cushion the impact of this crop loss.
“Speculative activity is also increasing, particularly on the Matif [the French futures market], which is a lot easier for investors to get into and out of,” Mr Worrell said. “We’ve seen a big difference emerge between French and UK futures, with quite a big discount in the UK, which is driving buying interest in London.”
The price uncertainty and speculation was likely to continue at least until there was a clearer picture of crop performance around the world, he said. “France is getting into its wheat and we’ve seen a bit cut in the UK, but it’s very early days. So far quality looks satisfactory and yields variable.”
Independent consultant Richard Whitlock suggested the UK crop may not be as bad as some feared, especially on less drought-prone land. “Given a decent run of weather over the next few weeks, we might get some surprising yields.
He said it was worth considering locking a proportion of this season’s crop into attractive forward prices and maybe even further ahead. “It’s a hungry market and a price upwards of £120/t for 2011 doesn’t seem too bad. It might be worth considering taking advantage of it if you can make a margin at that.”
A BULL RUN?
The recent upturn in wheat markets has sparked debate about a possible “bull run” on the FWi forums. Below is a selection of comments, go to www.fwi.co.uk/forums to have your say.
“Well, we all know what “investors” are like, they over-cook the runs and they precipitate and then exasperate the falls, and it seems a “soft” commodity like wheat is no exception… the current price is a complete over-reaction to current conditions and simply cannot be sustained.”(stop it)
“Short selling should be outlawed; it is totally immoral.” (glasshouse)
“As a farmer, you cannot demand a price, you have to ask the market what it will pay. If you are able, then accept, if not, then decide whether you can afford to risk waiting, or take yet another loss.” (old mcdonald)