London Wheat Outperforms Paris On Sterling Weakness

18/01/13 -- EU wheat futures closed mixed with Jan 13 London wheat down GBP2.00/tonne to GBP211.60/tonne, benchmark May 13 GBP0.35/tonne higher to GBP215.00/tonne and new crop Nov 13 GBP0.65/tonne firmer at GBP188.55/tonne. Mar 13 Paris wheat was unchanged at EUR248.00/tonne.

For the week, Jan 13 London wheat gained GBP4.60/tonne, May 13 GBP8.00/tonne and Nov 13 GBP5.55/tonne. Mar 13 Paris wheat added EUR3.25/tonne during the course of the week.

London wheat seemingly gained more than it's Parisian counterpart due to sterling weakness, not that the UK will expecting to make too many foreign sales any time soon on the back of it. Indeed, it's beginning to look like the majority of the low bushel weight wheat left around might still be here come harvest 2013 as imports of better quality wheat continue to flood into the country.

The pound has been under pressure all week ahead of an important speech, originally due today but now rescheduled for Monday due to the Algerian hostage crisis, from David Cameron on the UK's relationship with Europe.

The pound has fallen 3.25% against the euro and 2.3% versus the US dollar since the turn of the year on speculation that the UK might leave the European Union. Today's losses saw sterling slump close to it's lowest level against the dollar in 4-months and a near 11-month low against the euro.

The Buenos Aires Cereals Exchange said that the Argentine wheat harvest was over at 9.8 MMT, the Ministry there cut their estimate to 10.1 MMT. Both are considerably lower than the USDA's 11.0 MMT, and also make the latter's forecast for Argentine wheat exports of 7.5 MMT in 2012/13 look particularly unlikely.

Brussels issued 340 TMT of EU soft wheat export licenses this week, bringing the cumulative marketing year to date total to 10.4 MMT. That is now fully 35% ahead of year ago levels and continuing to accelerate - at the end of November for instance EU exports were "only" 12% ahead of last season.

Ukraine may squeeze out a little bit more wheat in the current marketing year, according to APK Inform. Exports as at the end of December were 5.9 MMT and may reach 6.5 MMT by the end of 2012/13, they predict. Winter crop conditions have been much better than twelve months ago in Ukraine, and optimism that crop potential will be looking good come the spring may encourage to government to allow a little more wheat to leave the country it appears.

Concern over the health of the US winter wheat crop continue to mount, with potentially higher than normal levels of abandonment expected in the spring. Around 70% of mainland America is in drought, and central areas are the worst affected - right where the bulk of the winter crop is grown.

"The odds are stacked heavily against a favourable hard red winter wheat harvest," said Gail Martell of Martell Crop Projections.

"Winter storms have produced generous precipitation in Southern Plains winter wheat areas, but profound drought previously has stacked the odds against a favourable harvest. Fields are dry through a very deep layer. One or two winter storms are not enough to replenish parched soils," she maintains.