Wheat markets down, but uncertainty remains

Wheat prices have drifted lower over the past week as a host of bearish factors have weighed on markets.

November 2011 wheat futures were trading at around £170/t as Farmers Weekly went to press on Wednesday (22 June), about £8 down on the week. Old crop wheat was priced at around £178/t ex-farm and new crop nearer £160/t for harvest.

Rain across major growing areas of Europe and Black Sea regions has improved yield prospects, and the likelihood of Russia and Ukraine returning to export markets has added to the price pressure. US grain markets have also fallen on news that the corn crop is now planted, ongoing debate around ethanol blending credits and early winter wheat yields reported as “better than expected”.

Good conditions in Australia have also allowed it to sow a record winter crop of 22.9m ha, with the wheat area up by 7% on last year at 14.3m ha and total wheat production forecast to be around 26.2m tonnes, slightly below the previous season’s record.

But, while the immediatse feeling among traders appears to be more bearish, there is a lot of uncertainty in markets and a host of more bullish factors could spark a rebound in prices.

Strategie Grains last week cut its EU grain production forecast by 9m tonnes due to the spring drought in Western Europe. There is also growing uncertainty around how much grain Russia and Ukraine will actually export in 2011/12, after the Ukrainian president signed a law adopting export duty tariffs for several varieties of grains. This is due to come in on 1 July, until 1 January 2012.

“Expectation is growing that Russia will follow the Ukraine and impose a levy on grain shipments to keep food prices in check,” said Gleadell managing director David Sheppard. “But what level these may be at and when they might be imposed is far from clear.”

Traders will also be watching the situation in Canada closely, where wet planting conditions have meant the unplanted area could reach 3m ha this year, just behind 2010, according to a report by market analysts Agritel.

Openfield‘s Mark Worrell said: “It is a time of uncertainty as markets have a shakeout. Only time will tell where they go next and yield will be the driver.”

Despite the short-term sentiment, the fundamentals still appeared bullish for the medium- to long-term, Mr Sheppard added.

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