Wheat prices bounce as grain stocks tighten
Increasing concern about the tightness of global feed grain stocks has boosted domestic wheat markets by up to £10/t over the past week.
The main driver for the latest gains came last Friday (8 October) when a bullish US Department of Agriculture report showed an unexpected 13m tonne reduction in the US maize crop, combined with a 3m tonne increase in US demand. Global maize production was also revised down, while demand was 6m tonne higher than earlier predictions.
The report was followed this week by the HGCA‘s first supply and demand balance sheet for the 2010/11 season. It said this harvest’s bigger UK wheat crop would not compensate for a reduction in stocks and imports.
Overall, wheat availability was likely to be 2% down on 2009/10, despite Defra estimating a 5% bigger crop at 14.83m tonnes. More crops were going into bioethanol production following the opening of the Ensus plant in the spring and the HGCA estimated opening stocks would be 33% lower than last season and imports 13% down.
Prices here have rallied over the past week, although the USDA report proved to be the biggest driver. Following its release, November wheat futures briefly climbed to £170/t, but after traders’ profit they came back to nearer £166/t as Farmers Weekly went to press. Spot values have also risen, averaging about £155-160/t ex-farm by mid-week.
“UK wheat prices drifted down by the best part of £18/t and were waiting for the next driver, which came last week,” Openfield‘s Mark Worrell said. “Markets have reacted, but they’re still £5 off the contract high.”
HGCA analyst David Eudall said the USDA’s maize crop reduction had been much greater than expected, making the supply-and-demand balance sheet look more vulnerable than initially thought. While northern hemisphere wheat supply also faced challenges, generally most of these had already been factored into markets, he said.
“The UK has been competitive in export terms for the past six months,” he added. “The exchange rate has been helpful and, on simple pricing terms, we’re at a large discount to the French market.”
Mr Worrell agreed that UK wheat was still sought after in Europe and further afield, but added: “We can’t continue to export at the level we have been doing. The market isn’t lying down, but the world will have to price-ration itself.”
Future price direction would be driven by other feed grain reports from the US and yields from southern hemisphere crops once harvest started over Christmas and the New Year, he said.
