November 30, 2010

UK wheat tops 2.5-year high

UK wheat prices rose to a 2.5 year high as bulls set a new target of GBP200 (US$311) a tonne by year end, supported by ongoing concerns that the rapid speed of exports will squeeze this season's supplies.

Front-month January feed wheat futures on London's NYSE Liffe exchange rose to a peak of GBP180/tonne (US$280/tonne), building on the fortnight's gains to hit their highest point since March 2008.

The increase comes amid a growing consensus that the UK wheat market has become oversold. Dealers say exports could hit 1.8-2 million tonnes by the end of the year. Thus, it far outweighs the country's exportable surplus which the government pegs at around 1.3 million tonnes this season.

"The price is telling us that we have sold more than we can afford to export so long-holders are sitting on their positions," said an analyst. "There are a few people trying to buy but there are no sellers."

UK wheat exports have started at a "staggering" speed this season, said Rabobank, running at nearly double in contrast to the same time last year in the first three months of the 2010-11 marketing year at over 850,000 tonnes.

Investors say the country may have to depend on imports later in the season to meet domestic demand, which is expected to grow by 5% this year, according to government figures.

"If exports continue at this pace, I think we could go very near to GBP200/tonne (US$311/tonne)", said another analyst.

Wheat prices surged to two-year highs this summer after drought in the Black Sea region forced Russia to ban exports until July 2001 and major feed wheat producer Ukraine to impose quotas on grain shipments this year.

Although Paris prices have eased from highs, UK prices have continued to rise as the pace of exports have increased, closing the premium for French milling wheat to EUR5/tonne (US$6.56/tonne) from a high of EUR35/tonne (US$45.92/tonne) in August.

A third analyst said he expects the differential to continue to narrow as the "UK surplus is hard to replace from other origins and importers may struggle to cover requirements." Some observers even predict the markets could reach parity toward the end of the year.