July 30, 2010

Market uncertainty drives big gains in UK wheat prices

Crop uncertainty and speculative activity continue to drive volatile price swings for UK wheat markets during this week.

Futures markets saw a daily rise of almost GBP8/tonne (US$12) at the end of last week, before losing ground later the same day. But prices were on the way up again on Wednesday (28 July), with November 2010 London futures having strengthened by almost GBP6/tonne (US$9) on the previous day to reach GBP139/tonne (US$217), with GBP145/tonne (US$226) available for next May.

Spot prices have followed the unstable trend, averaging around GBP123-125/tonne (US$192- US$195) ex-farm by mid-week, with very little difference between old and new crop values as combines rolled into the first wheat crops in parts of southern England.

News about poor crops in various countries in an already nervous market was driving the volatile price swings witnessed.

The Ukrainian grain crop estimate was last week cut from 45.15 million tonnes to 43.5 million tonnes and about 20% of the Russian arable area has reportedly been lost due to drought. Its grain crop has been revised down by some two million tonnes, but wheat estimates remain unchanged at 49-51million tonnes. There were reports that the Russian government would sell grain to domestic processors from its stocks to cushion the impact of this crop loss.

Independent consultant Richard Whitlock suggested the UK crop may not be as bad as some feared, especially on less drought-prone land. "Given a decent run of weather over the next few weeks, we might get some surprising yields," he explained.

He said it was worth considering locking a proportion of this season's crop into attractive forward prices and maybe even further ahead. "It's a hungry market and a price upwards of GBP120/tonne (US$187) for 2011 doesn't seem too bad. It might be worth considering taking advantage of it if you can make a margin at that."