Tighter market pushes wheat price to new highs

London November wheat futures hit a new contract high of £169.25/t delivered on Monday (20 September), as markets reacted to reports of tightening supplies.

One report showed that the UK had exported more than 250,000t of wheat in July alone, while revised DEFRA supply and demand statistics put stocks lower than previously thought for the end of last season.

Traders said UK exports were likely to reach their potential 1m tonnes total before Christmas, which would keep the wheat price outlook firm.

Monday’s level was the highest price for the nearest futures contract delivery month since 17 April, 2008 when the daily nearby closing price reached £171.50/t. The November 2010 futures contract opened at £154/t in July 2008 and fell to a contract low of £100.25/t in June this year.

Demand remains very strong for low-grade milling wheat for export from the UK, making good shortfalls in other European countries. Our exports are very competitively priced against other sources, especially France.

However, prices dropped from the weeks’ early highs by Wednesday (22 September) so that spot ex-farm values were between £152 and £154/t, with November at £156-158/t.

HGCA analyst Michael Archer cautioned that high early exports were only a part of the story. “We need to know a lot more about the supply and demand balance sheet yet,” he said.

Further factors behind the firm outlook include weather problems affecting the Canadian harvest and figures released last week which put the size of the EU harvest lower than earlier estimates.

The market also has an eye on the US corn harvest where early yields are lower than hoped for, but the crop will still be a record. Despite this, the world corn crop will only just match demand and stocks of this commodity by the end of the season will represent just one month’s consumption.

While there are large world wheat stocks, these are not all held in exporting countries and much of the tonnage is held as strategic and political reserves.

Futures prices show a large gap between the current crop and new crop. For example, July 2011 was £171.75/t on 21 September while November 2011 was £136.15/t on the same day, demonstrating the widespread anticipation that wheat area will rise next season.

Provisional results from HGCA’s annual Cereals Quality Survey show improved quality for the 2010 harvest compared with the three season-average, which combined with a weak pound is behind the UK’s export success this season.

Hagberg numbers average 291, the highest value since 2006 and relatively consisitent across the regions. GB average wheat protein at 12.2% is up slightly on last season and on the three-season average. Average specific weight at 77.3 kg/hl is the highest since 2003.

However there are fears for the quality of unharvested crops in Scotland, where more than 50% is still to be cut. “Ten days ago people were pretty relaxed about it but now they are very concerned for yields and quality,” said Openfield’s Mark Worrall on Wednesday.

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