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Weekly Commodity Report w/e 22nd December 2017

In the UK, prices touched a four-week high this week at £143/T (range £141.25-£143.00) as Defra reduced its estimate of the 2017/18 wheat harvest from 15.1Mln T to 14.8Mln T due to lower yields.  As this is nearer to trade estimates, it is doubtful whether this will cause much market reaction. 


Defra and the trade are now in agreement that UK wheat supply and demand are in relative balance assuming both exports and imports also remain in balance.  HMRC data indicates that the UK remained a net importer of wheat in October, having imported 140,000T and exported a measly 46,500T (the lowest exported in the month of October for 16 years).  UK wheat prices continue to hold up well against the global weakness, shown by Liffe wheat which is about €161/T compared to the Matif at €164/T.  Brexit negotiations could cause a few problems in the future which will be reflected in currency exchange, but currently support is being found from the £ weakness to the €.  Sterling weakened slightly against both the $ and the € amidst Brexit negotiations and due to ‘gloomy due to Brexit’ comments by IMF’s Christine Lagarde. 

US wheat prices lifted this week reaching two-week highs due to fund short covering.  As of 12th December the funds were about 21Mln T net short of wheat, and 25Mln T net short of maize.  It seems that forecasts of freezing temperatures with little protective snow cover in the US Plains next week frightened some shorts; it is always worrying to hold large positions going into an extended break (Christmas ;) when the markets are closed.  The recent USDA report confirms a surplus of US wheat which is weighing on US prices, and explains the fund positions.  Demand for US wheat is still low compared to stocks suggesting that the current lack of price activity in this market could continue.  US March wheat futures are trading at $4.27/bushel only a few cents off last week’s contract low of $4.10/bushel.  The US 2018 winter wheat acres have been estimated at 31.1Mln acres against 32.7Mln last year. 

Massive Russian and EU wheat stocks continue to cap any tendency for price movement higher.  Russia increased its estimates for wheat exports for 2017/18 to 40Mln T although some question whether the winter weather will allow exports through the (potentially frozen) Black Sea and whether Russian logistics can cope with that volume. 


Soya beans closed at 3-month lows yesterday.  As of the 5th December the funds were 7Mln T long of soya, and a week later were only 3Mln T long, so it seems that the funds are selling their longs.  The funds appear to be going long of soya bean meal and of 12th December were 6Mln T long.  It is relatively unusual for the funds to have a larger position on meal than beans.  Argentinian weather is providing support with forecasts that were a little drier than the growing crop requires.  Rain is forecast, and the funds are probably facing indecision as to whether La Niña will appear or not.  It is expected that the USDA will estimate soyabean stocks at a record high with lower exports anticipated.  In terms of acreage, US farmers could also increase 2018 planted acres which would further dampen prices.  Brazil’s soya crop appears to be progressing well and production estimates range between 107-112Mln T.  There are signs the market is becoming over sold as Brazil and the US compete to supply China.  Argentina has taken a back seat as President Macri confirmed his decision to reduce soya export tax incrementally month by month, thus incentivising farmers to delay sales.  China is said to be have increased its quality criteria for imported soya beans; the reduction in admix (foreign materials) from 2% to 1% would particularly affect US exports, particularly those shipments already en route. 

At the Jack Daniels distillery at Lynchburg, Tennessee they have a unique way of celebrating Christmas – they build the Jack Daniels Christmas Barrel Tree.  Constructed with 140 used and empty 53-gallon American White Oak barrels weighing 7kgs each, strengthened with decking, the finished tree is 26-foot tall and weighs a total of 7 tonne.  One of the JD advertisements states ‘140 barrels remembering what it was like to be a tree’.  Cheers!

Merry Christmas!

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