Nogger's Blog

20/01/12 -- Jan12 London wheat has gained GBP16.25/tonne since the mid-December low, pretty impressive eh? So something pretty dramatic must have happened to cause this turnaround?

Well, world wheat production has actually increased by 2.5 MMT since then according to the USDA, or by 7 MMT if you want to side with the IGC.

Consumption must have gone up then? Well it has but only by 1.2 MMT according to the USDA or 2 MMT in yesterday's report from the IGC. By less than production has increased.

Bugger me, so we've actually got more wheat on our hands now than we did when wheat was GBP141.00/tonne? Yes.

I've got it, we must be exporting more. Well no actually, the EU has issued soft wheat export licences for just 7.7 MMT so far in 2011/12, a 36% decrease on last year. Despite a good set of numbers for November, UK exports are down by almost a quarter on where we were last season AND we've got a bigger crop here this time round AND demand from the domestic feed sector is very sluggish.

The Argie drought then? I mean it's decimated corn production down there hasn't it? Slasherty slash. Million of tonnes of the stuff must have been wiped off world supplies surely to Christ? Erm, no. The USDA have world corn production higher now than than they did in December, only by half a million tonnes mind, but higher not lower.

Hah, they don't know what they're on about the USDA. What about the IGC? Those lads have their fingers on the pulse. Glad you asked me that one, they have world corn output 8 MMT higher than in December. In fact they say that "despite a smaller US crop and a worsening outlook for South America, total maize production in 2011/12 is forecast to increase by 4%, to a record 861 MMT." Adding that despite crop downgrades both Argentina and Brazil are still expected to produce record crops.

I know! It must be ending stocks that have been reduced then? No, the USDA and IGC both have corn and wheat carryout higher now than they did in December. The outlook for next season, that must be well down then? No. record ending stocks in 20121/13 too.

Right, so what you are telling me is that we've got more wheat and more corn, both in terms of production AND ending stocks, than we thought we had in mid-December but prices have gone up significantly since then? By 11.5% in fact in the case of London wheat. Yes grasshopper.

Currency then? Well, the pound is up slightly against the euro since mid-December, which makes us less competitive on the continent not more so. The dollar then, it must be the dollar? The pound was 1.5465 on December 14th when London wheat bottomed, by some strange quirk of fate it is exactly the same right now.

Hmmmmmm....