New 5-Year Low For London Wheat Despite Brexit-Led Sterling Weakness

23/02/16 -- EU grains closed mostly lower again. Having traded mixed earlier, late weakness in US grains spilled over into European trade.

At the finish, front month Mar 16 London wheat was down GBP1.80/tonne at GBP103.40/tonne, Mar 16 Paris wheat fell EUR2.75/tonne to EUR150.25/tonne, Mar 16 corn was EUR1.00/tonne lower at EUR145.50/tonne and May 16 rapeseed was down EUR1.75/tonne to EUR354.00/tonne.

The pound remains "fragile" as the BBC puts it on concerns over a "leave" vote on the question of Brexit in the June referendum. That keeps sterling hovering around a 7-year low versus the US dollar (falling close to $1.40 today), and it's worst since the beginning of the year against the euro.

Citibank said that the chances of a Brexit are now as high as 40% after Boris Johnson declared that he'd be backing a "leave" vote. Goldman Sachs are saying that the pound could fall to $1.15 if we do vote to leave the EU, according to the Telegraph.

The uncertainty of it all at the very least could support London wheat a little across the next few months. That's the theory at least, although this was a new near 5-year lowest close for a front month tonight.

As far as the fundamentals go though nothing much has changed, very large/record world and EU wheat stocks and slack demand currently lead to the potential for a vary large carryover from 2015/16 into new crop.

There are a few lingering concerns that a late hard freeze could damage EU wheat. "In most regions of western and central Europe, the hardening status of winter cereals has not improved, and remains lower than usual due to the persistence of above-average thermal conditions," said MARS.

"In the region between eastern Germany and central Ukraine, as well as in southern Russia, a slight increase in frost tolerance was simulated during the second half of January; whereas in central Europe and western Ukraine, the process of de-hardening started in early February due to well above-average daily temperatures," they noted.

"As a consequence, winter crops are practically not hardened in western and southern Europe, Germany, Romania, southern Poland, and western Ukraine," they added.

In Ukraine, sharply lower wheat production is already expected this year, regardless of what the weather does between now and harvest time. UkrAgroConsult are predicting production 30% lower at 17.3 MMT, following reduced plantings in the autumn and an unfavourable start to the growing season.

Much of the land that didn't make it into winter wheat will probably go into sunflower and corn production this spring.

In other news, Saudi Arabia said that it has 1.8 MMT of state-owned wheat reserves, up from 1.6 MMT a year ago, and sufficient to last it 6 months. Despite current low prices this has been keeping them out of the import market lately, but they expect to return fairly soon, according to an article on Reuters.