A forecast 15% decline in this year’s UK wheat area has failed to ignite lacklustre grain markets as merchants remain concerned about how much old crop remains on farms.

DEFRA’s December census revealed late last week that 1.7m hectares of wheat had been sown by 1 December, 14.7% less than the above-average amount in 2007. Both old and new crop prices rallied slightly after the report. But Frontier‘s Nick Burchell said gains were limited, as markets had largely expected a fall.

“The overriding factor is where last year’s surplus will go,” he said. The UK normally carries over about 1.8m tonnes of old crop into the new season. But after last year’s bumper 17m tonne harvest and a slowdown in recent export activity – despite favourable exchange rates – this is expected to be nearer 2.2m tonnes this year, he said. The difference between the November wheat futures price of £124.50/t and May’s £111/t reflected the scale of the uncertainty, he said. “It’s a huge gap and shows there’s an overwhelming amount of old crop still to shift.”

The latest USDA report, which raised the 2008/09 world wheat crop by 1.65m tonnes to 584.4m tonnes, added to the potential downward price pressure. It predicted world end-stocks would rise to 155.9m tonnes, largely on the back of lower domestic demand in the US, China and former Soviet Union.

But despite those bearish factors, Openfield‘s Simon Ingle said there was a strong case for thinking prices could firm later in 2009. “We will have a big carry-over on a global basis, but sowing in all the major areas is down this season. If that coincides with poor yields, we could end up with a pretty spicy trading season.”

Indeed, a report by European market analysts Strategie Grains cut the EU-27 2009 wheat crop estimate by 1.5m tonnes to 130.7m tonnes, compared with 140m tonnes in 2008. Lower plantings in Spain, UK and France were cited as the main reasons for the lower forecast.

“Farmers may be tempted to hold on to old crop and carry it into the new [crop marketing] year, on the presumption that supply and demand will be tight. But don’t forget that at some stage, that old crop has got to come on to the market,” said Mr Ingle.

Mr Burchell agreed that supply and demand would remain relatively tight. But without a weather event, such as flooding or drought in a key producing region, he remained bearish about price prospects.