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.