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Wheat Market Update - Thursday 4th March 2010
UK and Europe Harvest Overview
Large carryover stocks and favourable new crop planting figures are still weighing heavily on London futures markets. However, volatility remains and external markets continue to influence values on a daily basis. Currency is the main driver at present with the pound depreciating rapidly earlier in the week on fears that the UK will have a hung parliament in the forthcoming election. This offered support to London wheat values and will continue to have a strong influence in the run up to the general election.
Old and new crop bread making wheat premiums have narrowed slightly across the country but physical trade remains thin. Farmers continue their reluctance to sell at these lower prices and have chosen to sit on stock until there is a bounce in the market or they are forced to sell towards the end of the harvest year. A widening spread between May-10 and Nov-10 futures contracts could start to incentivise the carry of old crop into the new harvest year.
In other news, there was little surprise in Defra’s latest England planting area estimate, released on 2nd March 2010. They forecast a total wheat area of 1.8Mha, an increase of over 10% from the previous year. The UK area estimate is published next week and this figure should be approximately 2Mha.
US/World Overview
A severe lack of fresh fundamental news, large carryover stocks and poor export competitiveness continue to offer little support to U.S. wheat markets. Short covering by funds and the expectation that there would be a fresh round of money inflow excited the market earlier in the week but this was short lived. There is little incentive for markets to trade higher on fundamentals alone at the present but technical analysis indicates markets are nearing the bottom in oversold territory. Higher ethanol production figures could be viewed as encouraging but this is unlikely to impact prices anytime soon. The next real price driver will come on 10th March when the USDA release revised world supply and demand estimates.
Weather conditions across the Northern Hemisphere are going to be closely scrutinised in the run up to harvest in the hope that this will provide price direction. There is ample wheat availability across the world but a negative weather event could still impact values and push markets higher.
Summary
External markets will continue to influence daily wheat values over the coming weeks and months. Weather and planting prospects will be the main drivers on the fundamental side and negative reports could offer some support to global wheat prices. However, any upside movement is likely to be limited due to the increasingly large overhang of wheat on the market. U.S. and European season exports will finish lower and this will provide a buffer for such negative events. Markets are likely to drift until something dramatically changes on the fundamental side. One factor is for sure, volatility will continue to be fuelled by external markets and fund money flow in daily trade.
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