October 14, 2010

Global wheat prices rebound as grain stocks tighten

Increasing concern about the tightness of global feed grain stocks has boosted domestic wheat markets by up to GBP10 (US$15.99) per tonne over the past week.

The main driver for the latest gains came last Friday (Oct 8) when a bullish USDA report showed an unexpected 13-million-tonne reduction in the US corn crop, combined with a three-million-tonne increase in US demand. Global corn production was also revised down, while demand was 6m tonne higher than earlier predictions.

Overall, wheat availability was likely to be 2% down on 2009-10, despite Defra estimating a 5% bigger crop at 14.83 million tonnes. More crops were going into bioethanol production following the opening of the Ensus plant in the spring and the HGCA estimated opening stocks would be 33% lower than last season and imports 13% down.

Prices here have rallied over the past week, although the USDA report proved to be the biggest driver. Following its release, November wheat futures briefly climbed to GBP170 (US$271.94) per tonne, but after traders' profit they came back to nearer GBP166 (US$285.53) per tonne, according to reports. Spot values have also risen, averaging about GBP155-160 (US$247-255) per tonne ex-farm by mid-week.

Analysts said the USDA's corn crop reduction had been much greater than expected, making the supply-and-demand balance sheet look more vulnerable than initially thought. While northern hemisphere wheat supply also faced challenges, generally most of these had already been factored into markets, analysts said.

Future price direction would be driven by other feed grain reports from the US and yields from southern hemisphere crops once harvest started over Christmas and the New Year, analysts said.