Market Drifting Lower

27/02/12 -- The markets are down again this morning, drifting more than falling out of bed, but it's a while since I posted this picture of "Doris" so I thought I'd give it one more airing. May 12 Paris wheat has fallen below EUR200.00/tonne for the first time in more than a month this morning. Have we seen the top? If we have it was the 7th Feb close at GBP169.50/tonne for London wheat and the day before finish at EUR222.25/tonne for Paris wheat.

At least one merchant assured me that the top is indeed already in last week, pointing to the fairly wide spread between May 12 and Nov 12 - GBP16.50/tonne as at Friday night's close.

For once I haven't got a strong conviction either way, although I do strongly fancy Nov 12 to be significantly lower than it's current GBP149.00/tonne when we get there.

It seems unlikely that US corn yields will come in as high as the USDA's "trendline" number, but even so a record crop is a distinct possibility this year. Demand from the ethanol sector in the US is also waning. I also fancy a large increase in Ukraine corn production this year too, meaning that they will keen exporters come the autumn. As we should all know by now, price is a secondary concern with these lads which can only mean one thing for prices.

"The grass is growing," remarked MrsN#3 over the weekend. "Yes, and so is the wheat," I sagely replied as we drove past a field we pass regularly. That's about as exciting as it gets round here. There was no evidence of drought either as I walked the dog across a sodden field on Saturday morning. Round here at least things look better than they did twelve months ago, so there's reason to be optimistic over prospects for 2012 at this early stage.

My spies on the continent are also cautiously bullish about production prospects in Europe this year. So all things being equal a modestly higher European wheat output seems to be the most likely scenario come harvest time. The way exports have gone in 2011/12 it also appears to be a given that carryover into next season will be a significant amount too.

Potentially record US and Ukraine corn crops, the first decline in usage from the "golden child" darling of the ethanol sector for at least a decade and a decent European wheat crop with sizeable 2011/12 ending stocks carried into it. Why would prices not be lower come the autumn?