Wheat Déjà Vu?
Traders on both sides of the Atlantic seem at a loss to explain the sudden strength that appears to come out of nowhere for wheat.
Is it simply a "spring rally" blip against a background of huge global stocks that every bear in the marketplace keeps harking on about? Or is it a case of all the bearish news is already out there?
It's interesting to note that in 2009 the wheat market declined fairly steadily from January through to mid April (albeit starting from substantially higher levels than where we are now), before putting in a sharp rally that lasted six weeks from mid-April through to the end of May/first week in June. Nov10 London wheat peaked at GBP134/tonne then.
After that the markets went into free-fall, with Nov10 London wheat hitting a harvest low of GBP105.25 in mid-September 2009, before rebounding and then ultimately setting the recent and lifetime contract low of GBP100/tonne on 12th March 2010.
So here we stand today with Nov10 at GBP106.25/tonne as I type, having managed to regain a bit of strength this past month despite a better showing from the pound against both the euro and US dollar.
What can we attribute those gains to? Lack of farmer selling certainly is a factor, whether by design or simply because they are too busy with fieldwork now that spring has finally arrived.
Perhaps of greater significance to my mind is the sheer volume of speculative shorts in wheat. They've been talking the market down for so long, for two years in some cases, that the recent mini-rally has got a few spooked it seems.
European wheat finally got itself into a situation where it could compete on a truly global export stage with the recent highly publicised sales to South America and Asia. That coincided with supplies drying up in places like Ukraine, after six months of extremely aggressive marketing.
So where do we go from here? Are we in for another 2009 style rally through until the end of May? And what happened to spark that rally, and bring it to an end, last year?
There was a severe killing frost at the end of the first week in April 2009 that took out large areas of winter wheat in Oklahoma in particular, and an ongoing drought in Texas also cut wheat production there. US spring wheat plantings were badly delayed by floods of epic proportions last May. Egypt also had it's spat with Russia over wheat quality issues, and there was talk of drought damaging wheat output in Eastern Europe and the CIS.
May is often a pivotal month, as most US spring wheat planting is normally done by the end of then. Farmers have also been actively sowing in Canada, Australia and Argentina. The Indian harvest has been wrapped up, and is underway in China, the two largest producers of wheat in the world.
By June the combines are starting to roll in parts of Southern and Eastern Europe, and on the large US winter wheat fields of Kansas and Oklahoma. Ukraine has had it's giro in and is planning to get drunk on export(s). Cash-starved Romania, Hungary etc simply can't wait to get stuck in either, and so it all starts again.
Even if yields are lower this year and the hard winter has taken it's toll across Europe and the FSU, by June the hungry will have been fed, and the needy will be exporting anything that isn't nailed to the floor. That sounds like prices will go lower again this summer no matter what to me.
Having said that, if you fancy a long term punt, the "Sold Out" signs might be getting hung up in the windows of Ukraine and the likes even earlier in 2010/11. That could make the 2011 "spring rally" quite interesting, and those that have held off selling that long might find that they have a few willing suitors all of a sudden.
There you go, not only what is wheat going to do for the rest of 2010 but I'll even throw in the first quarter of 2011 for free, missus:
Is it simply a "spring rally" blip against a background of huge global stocks that every bear in the marketplace keeps harking on about? Or is it a case of all the bearish news is already out there?
It's interesting to note that in 2009 the wheat market declined fairly steadily from January through to mid April (albeit starting from substantially higher levels than where we are now), before putting in a sharp rally that lasted six weeks from mid-April through to the end of May/first week in June. Nov10 London wheat peaked at GBP134/tonne then.
After that the markets went into free-fall, with Nov10 London wheat hitting a harvest low of GBP105.25 in mid-September 2009, before rebounding and then ultimately setting the recent and lifetime contract low of GBP100/tonne on 12th March 2010.
So here we stand today with Nov10 at GBP106.25/tonne as I type, having managed to regain a bit of strength this past month despite a better showing from the pound against both the euro and US dollar.
What can we attribute those gains to? Lack of farmer selling certainly is a factor, whether by design or simply because they are too busy with fieldwork now that spring has finally arrived.
Perhaps of greater significance to my mind is the sheer volume of speculative shorts in wheat. They've been talking the market down for so long, for two years in some cases, that the recent mini-rally has got a few spooked it seems.
European wheat finally got itself into a situation where it could compete on a truly global export stage with the recent highly publicised sales to South America and Asia. That coincided with supplies drying up in places like Ukraine, after six months of extremely aggressive marketing.
So where do we go from here? Are we in for another 2009 style rally through until the end of May? And what happened to spark that rally, and bring it to an end, last year?
There was a severe killing frost at the end of the first week in April 2009 that took out large areas of winter wheat in Oklahoma in particular, and an ongoing drought in Texas also cut wheat production there. US spring wheat plantings were badly delayed by floods of epic proportions last May. Egypt also had it's spat with Russia over wheat quality issues, and there was talk of drought damaging wheat output in Eastern Europe and the CIS.
May is often a pivotal month, as most US spring wheat planting is normally done by the end of then. Farmers have also been actively sowing in Canada, Australia and Argentina. The Indian harvest has been wrapped up, and is underway in China, the two largest producers of wheat in the world.
By June the combines are starting to roll in parts of Southern and Eastern Europe, and on the large US winter wheat fields of Kansas and Oklahoma. Ukraine has had it's giro in and is planning to get drunk on export(s). Cash-starved Romania, Hungary etc simply can't wait to get stuck in either, and so it all starts again.
Even if yields are lower this year and the hard winter has taken it's toll across Europe and the FSU, by June the hungry will have been fed, and the needy will be exporting anything that isn't nailed to the floor. That sounds like prices will go lower again this summer no matter what to me.
Having said that, if you fancy a long term punt, the "Sold Out" signs might be getting hung up in the windows of Ukraine and the likes even earlier in 2010/11. That could make the 2011 "spring rally" quite interesting, and those that have held off selling that long might find that they have a few willing suitors all of a sudden.
There you go, not only what is wheat going to do for the rest of 2010 but I'll even throw in the first quarter of 2011 for free, missus:
