Nogger's Weekend Wheat Wire
EU wheat futures closed lower Friday with Paris January milling wheat down EUR1.25 to close at EUR134.25/tonne. London January feed wheat closed down GBP1.85, or 2%, at GBP92.65/tonne.
In a week of mixed signals for wheat currency is becoming more and more important. Every wheat exporting country around the globe, with the possible exception of Argentina has wheat to sell. How you local currency is faring against the dollar detirmines how competitive, or otherwise, your country's wheat is on the export arena.
With the pound posting it's biggest gain in percentage terms against the dollar this past week since 2000, then it's maybe no surprise that UK wheat hasn't found much interest.
What a contrast from a couple of weeks ago when we were exporting UK wheat to America! Since then however, the pound has climbed from $1.48 to $1.54, that has been enough to knock our competitive edge, and the same US buyer has subsequently bought Brazilian wheat.
Still, it's not all doom & gloom, at least not for exporting wheat, with many pundits saying that there is only one outlook for sterling in the foreseeable future, lower. A steady stream of disappointing economic data added further gloom to British economic forecasts, and the general mood remains dour for the British Pound.
The outlook for UK interest rates is still sharply lower, and the pound could still fall to $1.4100 by the end of the year, BNP Paribas said earlier in the week.
Well, if British wheat can find export homes in the US, of all places, with the exchange at $1.48 then it's certainly going to be competitive if we hit $1.41 then isn't it?
The main problem as we all know for our domestic crop is that we haven't got a quality card to play.
Looking further ahead, the jury is well and truly out on prospects for 2009 and beyond. World plantings are forecast only slightly down (-1.6%) by the IGC, still even just a 1.6% reduction in output would equate to 28 million tonnes less wheat next season.
Global ending stocks for the current 2008/09 season are pegged at 307 million tonnes by the IGC. That might sound like a lot of wheat, but in reality it is only two months supply, so it's actually still quite tight.
World demand isn't going to get any smaller, despite the recession. Many analysts reckon that, by mid-2009, globalisation will quicken, with China, India, Russia and Brazil all increasing their economic strength. Emerging economies, whilst they might see economic growth drop from 8% to 6% in 2009, are still growing. And so is their appetite for meat. Global meat consumption is seen up 2% in 2009/10, according to the IGC. This had led to a steady and continuing expansion of the Chinese pig herd and poultry flock, for example, which required extra quantities of feed grain.
The big unknown for next season are what are yields going to be like? It seems unlikely that the entire northern hemisphere will escape with virtually ideal growing conditions next time round. In addition, how much fertiliser is going to be used with prices doubling, whilst wheat has halved, compared to twelve months ago?
It's early days yet, but on the balance of probability, world wheat production in 2009/10 will be lower than presently forecast. Perhaps significantly so. I don't see demand decreasing. Maybe the financial stimulus packages announced by governments the world over will finally be trickling through and making a difference by then too?
We shall see, whatever, I'm modestly bullish wheat for the second half of 2009.
CBOT Closing Comments
Corn
Due to the Thansgiving Holiday, trading ended at 12:00pm CST. CBOT corn futures traded lower this shortened trading day. Weaker crude oil and stronger dollar price movements were the major reasons for this price decline. USDA FAS released their weekly Export Sales for the week ending November 20. Net sales of US corn were up 7% from the week prior @ 465,000 MT. At the close, CBOT December corn $3.49, dow, 44 points.
Soybeans
Soybeans ended the abbreviated session anywhere from UNCH to 7 cents lower. According to this week’s USDA FAS Export Sales, net sales of soybeans were down 1% for the week ending November 20 compared to the previous week. Soybean oil export net sales were eight times larger than last week’s depressed level at 17,100 MT. Export net sales for soybean meal were also down from the previous week. Compared to this time last market year, US exports for soybeans are up 8%, soybean oil is down 23% and soybean meal are down 5%. At the close, CBOT January soybean $8.83, down 3 cents. January soybean oil $0.32, down 4 points. December soybean meal $256.00, down $7.20.
Wheat
December CBOT wheat futures ended higher during this shortened trading day. Activity and volume were light due to the Thanksgiving holiday where most traders have taken the weekend off early. Declining crude oil futures and increasing US Dollar are bearish influences to Wheat. This morning’s USDA FAS Weekly Export Sales stated that wheat exports were 14% down from the prior week but within the range of trader’s expectations. In Chicago, Egypt’s yesterday purchase of 55,000 tonnes of SRW helped provide positive fundamental support to wheat futures. At close CBOT December wheat 5.42, up 7 cents.
Argentina Gets Some Rain Relief
Hevay showers Thursday night and Friday across Argentina's parched grain belt brought some relief for the country's struggling wheat crop.
Rains of up to 60mm fell north of Buenos Aires province, south of Entre Rios and west of Cordoba, according to the Rosario Grain Exchange.
But with the crop estimated to be already 20% harvested, exactly how much benefit these rains will bring is debatable.
Early harvest results show yields to be down around 20% on last season, due to drought and decreased fertiliser usage.
With a lower planted area as well, final output is generally estimated in the region of 10mmt, around 35-40% down on 2007, with some estimates coming in as low as 9mmt.
World Rapeseed Supply/Demand 2008/09
Oil World is currently forecasting world rapeseed production in 2008/09 at 56.5 mln t, up from 49.0 mln t in the previous year.
Main producers will be the EU with 18.8 (18.4) mln t, China with 11.7 (10.4) mln t, Canada with 11.7 (9.6) mln t, Ukraine with 2.9 (1.1) mln t and Australia with 1.4 (1.1) mln t.
Total exports are seen at 9.7 (8.5) mln t, of which 5.7 (5.9) mln t will come from Canada, 2.5 (0.9) mln t from Ukraine and 0.7 (0.5) mln t from Australia, it says.
Global use is estimated at 54.0 (50.7) mln t.
This should lead to increased ending stocks of 7.2 (4.7) mln t.
eCBOT Close/Early Call/USDA Export Sales
eCBOT grains trimmed earlier gains to close lower in the overnight markets, with soybeans down around 1-3c, corn 2c easier and wheat 2c lower.
Egypt bought 55,000mt US wheat last night, passing on Russian and French grain, which was seen as supportive.
The IGC Thursday maintained it's estimate for 2008/09 global wheat production at 683mmt, 73mmt higher than in 2007/08. Consumption for the current season was reduced 1mmt to 650mmt.
Dryness in Argentina and harvest rains in Australia are still a cause for concern.
The EU said it has granted licences to export 14.9 million tonnes of grains so far this season, nearly double the 7.6 million at the same point last year.
The IGC raised its forecast for 2008/09 world corn production by 2 million tonnes from it's October forecast to 775 million tonnes.
In it's weekly export sales report for the week ended Nov 20th the USDA announced export sales for wheat of 438,600MT (vs expectation of 300-500,000MT); corn 465,400MT (300-500,000MT); soybeans 785,600MT (550-750,000MT); soymeal 59,700MT (100-125,000MT); soyoil 17,100MT (5-10,000).
Early calls for this afternoon's shortened CBOT session: Corn futures are expected to open steady to 4 lower; soybeans steady to 5 lower; wheat mixed.
EU Caps Wheat Intervention Tonnage
As part of the EU's latest farm policy revamp, ministers have voted to cap the volume of bread-making wheat sold into intervention stores at 3mmt at a price of EUR101.31/tonne.
If and when this quota ceiling is hit, farmers will have to tender to sell their wheat, and EU policy makers will decide at what price further tenders will be accepted, if at all.
It's not quite the end of intervention, but it's certainly the end of intervention as we know it.
Of course, EUR101.31/tonne is well below the current market price for milling wheat, equivalent to around GBP84 at current exchange rates. So the decision is unlikely to have much impact here in the UK, or indeed with our near neighbours on the continent.
It could be more significant in Eastern Europe however. Offers into intervention so far this season, which only started on 1st Nov, have amounted to over 24,000mt, mostly from Hungary, Slovakia and Bulgaria.
EU Votes To Halve Biofuels Targets
The European Union's industry committee has voted to half its biofuels target for 2020, reducing it from 10 % to 5 % of total road fuel in energy terms.
Against all expectations, the EU's industry committee voted to reduce its biofuels target by 50 % which, remarkably, would leave the 2020 target lower than the 5.75 % target for 2010!
The parliamentary committee's vote follows a plethora of bad publicity for biofuels, with the main criticism being that its production has diverted crops away from food, thereby pushing up prices. It has also been argued that forests have been destroyed in order to make way for the cultivation of biofuels crops.
Dairy Farmers of Britain Announce Closures
Dairy Farmers of Britain (DFB) has announced it is closing dairies in Portsmouth, Hants, and the Fole Dairy near Uttoxeter, Staffs.
It is also proposing the rationalisation of distribution depots at Portsmouth, Cheshunt, Leeds and Lincoln.
Some jobs will also go in reorganisation at the head office in Nantwich, Cheshire.
DFB, a co-operative of more than 2,000 farmers, is blaming rising costs over the past year and financial under-performance by the dairies.
The following measures have been announced by the company today:
- The Portsmouth dairy will close on 28 February 2009, affecting 186.
- The Fole dairy near Uttoxeter will close on 28 March 2009, affecting 246 staff.
- The Leeds depot will merge into the Sheffield depot, affecting 59 staff.
- The Lincoln depot rounds will transfer into other depots in the Lincolnshire area.
- The Cheshunt dairy in Hertfordshire will also be closing.
DFB said: "The proposed restructuring programme is designed to return the business to profitability in the next financial year.
"We recognise that this announcement impacts upon our employees at a difficult time and we will be working closely with employees, their representatives and local employment agencies to secure alternative employment for as many members of staff as possible."
Dairy Farmers of Britain chairman Rob Knight resigned last week. Farmer director Lord Grantchester, who has been named interim chairman, said the trading environment presented challenges for all dairy businesses.
