Wheat: downward spiral continues, focus switches to large new-crop supplies

Chicago wheat futures closed with heavy losses Friday night (May down 43c) in continuation of a downtrend ahead of new-crop.

Lingering doubts about tight old-crop stocks are being rapidly eroded as attention switches to abundant new-crop world-wide supplies.

The price differential between old & new crop had become so large that something had to give & it's old-crop thats doing all the giving.

As previously reported on this blog, the May/Nov differential has eroded considerably recently for Paris-based milling wheat futures, down from EUR45 at the beginning of March to EUR11.50 on Friday night.

London feed wheat futures have also seen the May/Nov differential reduce from GBP33 to GBP20 during the same period. However this still represents a huge price difference and further significant erosion can be expected over the coming months as harvest approaches & feed demand wanes.

Europe is expecting a massive wheat crop in 2008. It seems like a "no-brainer", why on earth wouldn't you plant as much wheat as was humanly possible with prices where they were last autumn?

The Ukraine has the stuff coming out of their ears. They need to get rid of another 7mmt across the summer just to fit 2008's harvest into the stores. Australia has got a potential record 27mmt crop on the way. That's 20mmt more than they use domestically. We here in the UK are expecting roughly 4mmt more than last year.

Add on top of that the US, Russia & the rest of Europe, why is there such a surprise then that wheat prices are falling?

With the state of the (world-wide) livestock industry don't expect any strength to come from that sector.

Oh, and summer is round the corner as well.