Reasons To Be Bullish (Part 3)

OK, it's an Ian Dury parody, there haven't been parts 1 or 2 so far, but it's the best I can do at this time of night.

"Why are you so bullish on wheat?" somebody asked me the other day, "when all the signals are so quite clearly pointing down."

A good question I have to say, and it's often not easy going against popular opinion, but something I enjoy nevertheless. As some of you may recall, I was also bearish on wheat, contrary to popular opinion, twelve to eighteen months ago.

Back then wheat was going through the roof, and not surprisingly everyone planted more of it. Despite this well documented fact almost everybody to a man assured me that "things are different now, we've never been in a market like this before, the rule book has gone out of the window."

So why on earth should I be bullish now, can't I see all the signs, the bleeding obvious? Let me guess? Are "things are different now, we've never been in a market like this before, the rule book has gone out of the window."

OK, it's harvest time, the market is normally depressed at this time of year, can't anyone see beyond that?

Here's a few (3 following on with my Ian Dury theme) reasons to be bullish:

1) World wheat stocks are increasing. What? Run that by me again, that's why everyone is bearish isn't it? Yes, world stocks are increasing in China and India mostly, apart from the odd million tonnes or so from the latter what difference does that make? China's stocks could be 30 MMT, 60 MMT or 90 MMT, it might alter the world balance sheet, but it makes balls all difference to world trade. They don't buy on the global market or sell on it normally, so what the hell difference does it make? None.

2) The world is awash with wheat. Yes, if I see this one more time I swear I will scream, but there you go, the world is awash with the stuff, so why get bullish? Erm, the world's top exporting nations are who exactly? The ones that trade wheat, not hoard it? US, with 10-11 MMT lower production in 2009; EU-27, with around 15 MMT lower in 2009; Russia 5-8 MMT lower in 2009; Canada, bad drought, maybe 5-7 MMT lower or more in 2009; Ukraine 7-8 MMT lower in 2009; Australia, early days but El Nino is coming; Argentina, enough said, won't even be an exporter in 2009.

3) Consumption is falling. Yes Sir, we are for sure in a credit crisis so people will cut back on purchases of non-essential items. What? Bread you mean? Food? Erm, I think that there are more pressing things to cut back on than food, or feed that goes to make food. Egypt, the world's largest importer, don't seem to be cutting back, indeed they seem to be expanding their buying away from Russia, purchasing French and US wheat in various recent tenders. Yes, but if they are buying elsewhere then Russian and Ukraine wheat has to go somewhere? Indeed it does, but there will be substantially less of it looking for a home in 2009/10. And isn't there the little matter of increased consumption from the bioethanol sector?

If we use London wheat as an example, that went (from memory) from an post harvest 08 low of around GBP85 to a May high of GBP135, with all this extra burdensome old crop wheat in circulation. What could it do this time round without it?