London Wheat Is Falling Down

Just like London Bridge in the children's nursery rhyme London wheat keeps falling down, falling down. Unlike in the rhyme building it up with penny loaves isn't an option.

From a high of £165 at the end of February benchmark November feed wheat has fallen £52/tonne to £113/tonne today (currently down £1.25 from last night's close).

Global production numbers keep getting bigger with the French yesterday becoming the latest to increase their output estimates, citing a soft wheat crop 20% up on 2007.

And as the rain keeps falling in the UK, frustrating farmers with crops still left deteriorating in the field, it looks highly likely that what is left is only going to be feed grade.

Although we are well priced relative to French wheat, they have the quality that we don't.

With large portions of the wheat harvest also only fit for feed in competing export countries like the Ukraine and Russia it seems like feed wheat prices must fall further still.

The Ukraine have recently harvested a wheat crop of around 27mmt, 89% or 24.5mmt of it feed grade, thats an incredible three times the amount of feed wheat they produced in 2007.

Russia has harvested nearly 52mmt of wheat so far with 30% of the crop still to be cut, that potentially gives them a wheat crop of 74mmt this year, that would be 24mmt up on 2007. There are no official figures on what proportion of this years Russian crop is only feed grade but the percentage is said to be "higher than normal."

Deputy Agriculture Minister Andrey Slepnyov said in Moscow Tuesday they were monitoring grain exports and may impose limits on milling wheat exports as "there wasn't all that much milling wheat on the domestic market."

Clearly there isn't going to be a problem supplying any amount of feed wheat.

With a domestic feed requirement of just 14mmt the only problem the Russians have got is the logistics of shipping their huge surplus.

So, in the absence of any large export orders kicking around, it looks like UK wheat needs to price itself into compounders rations at significantly higher volumes.

Meanwhile milling wheats will continue to command hefty premiums over feed grade, penny loaves, forget 'em.