Week Beginning 7th November 2016

The London LIFFE wheat future for November 2016 has traded at £138.10/T this morning following a volatile week. Worldwide currency fluctuations ahead of tomorrow’s US election are making the value of UK feed wheat a very difficult commodity to price at the minute – hence the large disparities in ex-farm values.

 

After reading various articles online regarding tomorrow’s election and its potential impact on the grain markets, I am still rather confused! The general opinion seems to be that Clinton is deemed to be a safer option for the US economy which should (in theory) strengthen the value of the dollar. If the above is to be applied, the instalment of Trump into the Whitehouse on the other hand should (in theory) weaken the value of the dollar.

Various online polls this morning indicate a victory for Clinton – however, UK polls suggested earlier this year that the UK would vote to remain within the European Union so who knows. Either way I think it is safe to assume that it will be a quiet few days for the grain trade until it is had time to digest tomorrows outcome.

 

Feed wheat for collection before the end of the year is this morning valued somewhere in the region of £135.00/T – £137.00/T ex-farm. Although £140.00/T ex-farm was offered for spot towards the end of last week, this is currently being offered for April/May collection.

Feed barley is valued at £120.00/T ex-farm for collection in the New Year.

 

As for the milling wheat market, ex-farm values for full specification group 1 varieties have been unchanged once again this week despite the recent lift in the feed wheat market. This means that the premium between the two becomes increasingly squeezed, despite the market news indicating that milling premiums should improve as marketing season goes on.

 

Between July and September 2016, imported bread making quality wheat became increasingly uncompetitive against UK ex-farm values as the value of sterling declined.

In September this year, UK ex-farm bread wheat was around £30.00/T cheaper than imported “German A Grade Wheat”. In September 2015, it was a £22.00/T discount to UK ex farm bread wheat (in some cases this was still worth importing at these levels due to the marginally higher protein contents in that season).

It should also be noted that although the widening gap between the cost of UK ex-farm wheat and imported milling wheat is predominantly due to currency, it also reflects the reduced quality and thus reduced availability of this grade of wheat throughout Europe.

 

According to the latest data from DEFRA, wheat used by the GB milling industry throughout the first quarter of the current trading season (July – September) totalled 1.8 million tonnes. This is a 10% increase on the same period last season and is the highest amount of wheat milled during the first quarter of the season on records dating back to 1997. Whilst this may seem like positive news for milling wheat growers, it should be reminded that this figure includes wheat used for starch and bioethanol production and will account for the additional demand created by the re-opening of Ensus earlier this summer.

However, a significant proportion of this increase should account for the flour production industry – lower specific weights usually suggests a lower flour extraction rate, hence the need for more wheat to be milled to achieve the same level of flour output.

 

Elsewhere, having already been hit by above average rainfall in the past month, the Australian wheat crop, according to AHDB, continues to be the subject of further weather woes. Frost damage is now believed to have damaged more than 15% of the total grain crop with the most affected situated in the West – Australia’s key wheat producing region. Initial estimates for this seasons Australian wheat crop were in anywhere from 10 million tonnes to 12 million tonnes; current estimates given the ongoing weather pressures are now in the region of 8 – 10 million tonnes. This will be worth keeping an eye on as we head towards the New Year.

 


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