Wheat markets in for a bumpy ride
November wheat futures opened up again at £119.50/t on Monday (12 July) after the release of US Department of Agriculture figures into a nervous wheat market had pushed the market down by about £1 to £116/t on Friday afternoon (9 July).
This was despite most of the headline US figures showing a slight reduction in production and stocks.
Traders are predicting a bumpy ride for prices over the next few weeks and urging growers to keep a close eye on markets. Despite the stronger pound, UK wheat is very competitively priced against French grain. Feed wheat for harvest was priced anywhere between £103 and £108/t ex-farm mid-afternoon on Friday.
The new figures account for Canadian crop problems and the effects of European and other harvest weather problems around the world. Harvest has been delayed by heavy rain in eastern Europe and a heatwave elsewhere has put yields at risk.
Consumers, many of whom had taken very little cover even for August, have come into the UK market in recent days as prices rose steeply at the start of the week. The volatility has attracted more speculative money into UK grain futures and prompted some growers to sell grain for the 2011 harvest.
“The report was seen as bearish but pretty close to expectations. Whether that will hold long-term is another thing – the weather will take over from here,” said a national trader.
Part of the volatility is attributed by HGCA to investment funds going short on grains, particularly in US futures markets, in anticipation of another USDA report on plantings and stocks released on 30 June.
When the report turned out to be more bearish than expected, particularly on maize, this left the funds scrambling to make up those short positions in a rapidly rising market, which in turn increased the upward price pressure.
USDA 2010/11 estimates 9 July
• World wheat production 661m tonnes, down 7.5m tonnes on June estimate
• Global ending stocks 187m tonnes, down 7m tonnes on previous estimate
• World wheat stocks-to-use ratio now at 28% (29% June estimate)
• Canadian wheat to fall 4m tonnes from previous estimate to 20.5m tonnes
• EU wheat production estimated down 1m tonnes at 141.8m tonnes
• World maize stocks production and 2010/11 ending stocks ending stocks seen 6.2m tonnes lower at 141.1m tonnes