Nogger's Blog

04/04/12 -- The overnight grains show wheat down 5-7 cents, corn up 2 1/2 cents in front month May to down 2 1/4 cents in new crop Dec. Soybeans are 2-4 cents weaker and NYMEX crude is down half a dollar.

Fresh news is thin on the ground. Wheat is supported by tightness in old crop corn, but aside from a European crop maybe 5-7 MMT lower than originally anticipated what is going to support it going forward?

If we talk about London wheat specifically people keep asking me is old crop too dear or new crop too cheap? Well, firstly it should be noted that London wheat regularly tops out around this time of year.

Secondly, based on last night's close, May 12 London wheat at GBP172/tonne is the equivalent of around USD273.50/tonne. Chicago wheat at USD6.58/bu equates to around USD242.00/tonne - a big discount. Paris wheat at EUR211.50/tonne is the equivalent of USD279.00/tonne, a narrow gap historically between it and London considering the difference in quality.

Can we see Chicago wheat moving significantly higher from where it is now given that harvesting of the winter crop begins in six weeks, crop conditions are mostly very good at 58% good/excellent, spring planting is progressing well, world ending stocks are at or near all time highs and a modern day record corn crop is about to go into the ground over there?

I'll let you decide on that one.

Let's have a look at new crop November then, what do we know about that? Well, it's twelve quid cheaper than May for one. Again, based on last night's closing levels, we have new crop London wheat the equivalent of USD254.50/tonne, Paris wheat USD271.50/tonne and Chicago wheat (using Dec as there is no Nov) USD259.00/tonne.

Well, it's priced competitively relative to Paris wheat at least. Does that mean it's a buy though? We'll have a bigger than last year crop on our hands by then (hopefully now that rain has arrived), but we will also probably have Vivergo up and running also. Ensus, who knows? I wouldn't want to bank on it personally. We will also possibly have a record US corn crop on the market, and Russia once again exporting wheat aggressively.

Those that should know better than me tell me that what old crop wheat is left around is in strong hands. Let them keep it then I'd say, but I think that they will pretty soon decide that there's not much point carrying it into what the cash market is currently pricing as a GBP22/tonne discount from July into new crop August is there?

For new crop I'm a bit less confident on that, but if you put a gun to my head I'll go for Nov to be cheaper that last night's GBP160/tonne when harvest time comes around, although the off the combine GBP125/tonne that I was predicting four or five months ago now maybe looks a bit too low.

The wildcards that could change everything? Spain or a serious US weather scare.