London Wheat Struggles to Compete with USDA Data

The last seven days have brought a fairly brutal week to the grain markets with both old and new crop values showing significant signs of retreat.

After falling a further £1.30/T on Friday (10^th January), the London LIFFE wheat future for January 14 closed for the week at £154.50/T that evening – £6.45/T lower than the week previous and the lowest we have seen the January 14 wheat future trade since early September last year.

As for new crop, the November 14 wheat future closed at £154.50/T on Friday after falling a further £2/T that afternoon, setting a new contract low.

With the majority of the trade (and farm sellers for that matter) finally returning to their desks following the festive season last week, the trading screen has now assumed its ‘business as usual’ status and thus buyer interest has been much better this week.

Most of the interest has been for feed wheat for February/March deliveries – the classic pre-Christmas ‘stock up’ process is currently limiting January movement. The forecast cold spell has also sparked a little interest from feed compounders in the short term. Looking further forward towards the spring months, buyer interest is thinner than we would normally expect – many end-users are presumably awaiting some more physical evidence of this year’s South American harvest before they make any further commitments.

In opening trade this morning, the London LIFFE wheat future for May 2014 has opened £1.75/T higher with both the January and November futures yet to trade. Judging by the incoming ex-farm bids however, this has done little to alter the physical ex-farm values.

January/February collection is currently struggling to make £160/T ex-farm with £157-58/T ex-farm looking like a more realistic offer this morning – March/April movement would probably have to be negotiated for this sort of level to be achieved.

New crop feed wheat values are currently trading in the early £140’s/T ex-farm for as available collection with November movement struggling to make £145/T ex-farm.

As for milling wheat, again the spot position is fairly well covered at the minute due to additional pre-Christmas cover being made and therefore plenty of stock to wind through until any further deliveries can be made. Furthermore, it would appear that there is still a fairly significant amount of imported quality wheat to use yet – we should have confirmation of this later on this week with the latest release of the HMR&C import/export data.

Full specification group 1 varieties are currently trading around the £180/T ex-farm mark depending on farm location and movement requirements. Lower specification group 1 and some group 2 varieties ‘should’ make around £10/T less (although end-users are currently limited).

Soft group 3 and some group 4 varieties are making anywhere between £2-6/T ex-farm depending on quality specification and variety. In some instances, samples that are borderline on the protein front will probably do better leaving the farm as feed – group 4 varieties will need to test particularly well to justify the premiums.

Last Friday afternoon brought the release of this month’s World Agricultural Supply and Demand Estimates (WASDE) from the US Department of Agriculture (USDA), hence the downward pressure evident in the London wheat futures towards the end of last week. A few points are listed below:

·         WHEAT – Adjustments have been made to the combined wheat crops in Brazil, Egypt, Russia and China resulting in a total increase of 2.6M/T. Consumption is however forecast higher by similar proportions though leaving a very comfortable supply and demand situation.

·         MAIZE CORN – Adjustments to American production (cut by 1.6M/T) are hardly anything too disastrous but were a surprise to the trade. Argentina’s maize corn crop was also cut by 1M/T although this was expected. These were both however overshadowed by a 6M/T increase to Chinese production which could impact their long-term import program. Consumption is however also forecast higher which managed to compensate for the above.

·         OILSEEDS – Only minor changes were evident here – Brazil remains on target for a record soybean crop and increases were made to American production.

Meanwhile, it appears as though any South American based weather woes have now subsided – wet weather over the New Year appears to have compensated for the previously dry weather in Brazil and milder conditions in Argentina are also said to be beneficial. The recent cold spell over in North America also appears to have had little impact on next season’s wheat crop which is currently in the ground.

With two ‘weather stories’ now been and gone and this month’s USDA report doing little to enforce either, it looks as though we will need something fairly severe to convince the current market place of anything other than a serious rebound in grains production this year.

To view this month’s WASDE in full PDF format please see –

http://www.usda.gov/oce/commodity/wasde/latest.pdf