Wheat: Follow You, Follow Me

Well, who'd have thought it? Chicago wheat up limit, London wheat up £8. The threat of seeing my arse in Burtons window appears to drawing nearer! But, as Chris Tarrant would say, we don't want to give you that (not just yet anyway).

Now I might be wrong here (again), but I kind of suspect that if you were a US farmer ringing up your local elevator to sell him some wheat today, I don't somehow seeing him offering you 60c/bushel more for it than yesterday. Neither do I imagine that the physical market in the UK has moved up eight quid in 24 hours either.

If you are a US farmer then your winter wheat harvest is probably underway. Yields in many places are said to be 20-30% up on last year. Total output is forecast to be 20% up on last year. Elevators are full of the stuff. Exports are sluggish (who'd want to buy just before this huge crop comes onto the market?). And the spring wheat crop is doing well (crop conditions jumped 6% good/excellent this week to 63%).

US wheat prices are now rising, they say, because of the clear & undoubted problems with corn. Wheat is being seen as more of a feed commodity now in the US as corn threatens to hit $8/bushel. I can buy into that opinion to a degree. However US cattle & hog numbers are falling because the price of feed is so high.

Global increases in wheat production are well publicised, with sharp increases all over Europe, Russia and the former Soviet Union, China etc. Search this blog for these stories if you desire. Australia is still a bit of a wild card as planting isn't yet completed there. It seems that early talk of 26-27MMT may well have been optimistic, but certainly at this stage a very substantial increase on last season's 13MMT seems highly likely.

Basis (the difference between futures price and physical price) has plunged in the US this past week as futures have risen contrary to supply & demand fundamentals.

At home we've had some pretty good crop weather during the last few months, conducive to achieving a wheat crop around 4MMT higher than in 2007. From personal experience June has so far been very slow, with compounders reporting similar. Feed demand at the moment just isn't there. I doubt that things will be any different today just because the futures market is through the roof.