Lunchtime News - The Cheap Shops Are Sold/Selling Out

05/11/12 -- Whilst the US market is treading water/consolidating ahead of tomorrow's presidential elections, London wheat is pressing on to fresh highs.

May 13 currently trades GBP2.65/tonne higher at GBP222.00/tonne. That matches the highest price that London wheat has ever traded at, and a close there would comfortably be a record all-time high close for any London wheat month ever. Ongoing concerns about the fortunes of the 2013 crop also see Nov 13 push on to a lifetime contract high of it's own - currently up GBP2.50/tonne at GBP191.00/tonne.

Nov 12 and Jan 13 Paris wheat have also set contract highs this morning, along with new crop Nov 13.

Why? And where is it all going to end?

MDA CropCast cut their world wheat production forecast to 633.2 MMT on Friday, almost 20 MMT below the USDA's 653 MMT. That included a downwards correction for Argentina to 10.6 MMT on continued wetness there, versus the USDA's 11.5 MMT. They currently see Australian output at 20.6 MMT, 2.4 MMT below the USDA, although not the lowest number in the hat by any means. Some other private estimates are now below 20 MMT.

The trade has a clear idea that Russia and Ukraine are a spent force, despite the former winning 120 TMT of Egypt's wheat business for late December shipment last week. That may be the last we hear of them until July.

Ditto Ukraine, who didn't even tender. The confusion over whether they have issued an export ban or not isn't really relevant. Neither is how they dress it up, a de facto ban is in place one way or another. They are out of the wheat market until new crop.

In the case of Russia, the Ministry said on Friday that the grain harvest was 98.3% complete, producing 72.4 MMT in bunker weight. That ties in nicely with a SovEcon clean weight forecast of 69 MMT released earlier last week.

We must now consider that Russia has a domestic grain usage requirement of around 70 MMT per annum. Ministry data shows that they have already exported 10.3 MMT of grains so far this year and that according to the USDA carryin wheat stocks were 10.4 MMT, along with less than a million tonnes of barley and an unreported, but probably also less than a million tonnes, of corn.

So in round figures Russia have only produced as much as they will consume this season, and have more or less already exported their entire carryin stocks left over from 2011/12.

On the face of it, that leaves Russian grain stocks tighter than a tight thing that's been left out in the rain. I suspect at this point that an invitation for Kazakhstan to look at the wider long-term picture may be in the post. Not that they are over-blessed with a generous harvest themselves this year. Whatever they may have spare Russia will want for itself, possibly in exchange for some concessions regarding help with reaching export markets in future harvests and/or Russian help and investment with Kazakh storage/transport facilities.

So, it is certainly shaping up that the Black Sea are out of the market, leaving Europe (and predominately France) to temporarily try on Lance Armstrong's repossessed yellow jersey. Despite early season agressiveness from Russia and Ukraine though, EU exports have also been chugging along nicely at the start of 2012/13. With Matalan and TKMaxx out of the way that chugg could now be the Next to accelerate rather quickly.

Once they are out of the way, I say they as it's not like the UK are in the export market is it, then we are left with Argentina and Australia (Primark and Marks & Spencer - where we know production is now likely to be well down on last year) and/or the US and Canada.

Christ, there's only Harvey Nicks and Harrods left open and it's not even Christmas yet!