Is It 2007/08 All Over Again?

The overnight wheat market is lower, although not by much, no doubt on a bit of profit-taking as traders await to see if more money will pour into the market today, or if we've gone high enough for now.

London's near ten quid rally yesterday was all the more impressive given that it took place as the pound rose above 1.54 against the dollar. In the past three weeks Nov London wheat is up GBP27.25/tonne, and Nov Paris wheat up EUR36/tonne. Both 26% increases.

What's changed in that time frame (apart from the England squad realising that there not as good as they thought they were)? The Russian and Kazakh drought was certainly well documented then, as was flooding in eastern Europe. If anything French and UK wheat prospects have stabilised and maybe even improved a little, we have at least had cooler temperatures and some rain.

The USDA have come out with some rather bearish numbers on wheat stocks and supply. We've found out that the US HRW crop is better and bigger than we thought. Crop conditions in Western Australia have improved with rain and there's talk of a possible bumper year there in the east.

The harvest in Ukraine has stalled on persistent wet weather, but what has been brought in is yielding maybe a bit better than what was expected.

Which brings us all the way back to Russia/Kazakhstan as being the main bullish driving force behind this rally. I've knocked 5 MMT off my production estimates for these two combined in the past three weeks, or around 0.8% of world production. Are stocks so scarce that losing 5 MMT justifies prices up 26%?

Many are now likening this to "2007/08 all over again", suggesting that this is only the first 26%, there's a further 74% still to come yet. Are they right? The main similarity that I can see with then is that that particular rally had precious little to do with demand either. It was largely speculative led, and we all know what happened to that enormous house of cards.

A big difference between then and now is that global wheat stock levels are much higher. Up by more than a third from 73 days worth of supply to 102 days now, based on the USDA's latest missive. And in case you've forgotten we've got more than 5 MMT of barley sitting in European intervention stores still waiting to find a home.

So where do we go from here? We don't really know the answer to that one. As with 2007/08, that depends on whether - and for how long - investment money continues to pour into the grains sector looking to make a fast buck. One thing is for sure, they will all be stampeding for the exits again when the music stops, try and make sure it's not you left holding the baby.

Remember too that the harvest is upon us, and what happens soon after that? That's right planting time. What will the world's farmers do I wonder if wheat is still GBP130/EUR175/USD6 (or even higher) when that comes around? That's one that we do know the answer to. Rearrange the following words: LOADS PLANT SH!T OF IT (AGAIN) ABSOLUTELY. REGRET ONLY TO IT SUBSEQUENTLY COLLAPSES MARKET WHEN (AGAIN).