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Weekly Commodity Report w/e 19-5-17

We had hoped that UK wheat prices would ease once the May futures had been depleted. There are currently only 400 lots (40,000t), and the May contract expires next Tuesday, and yet the futures are trading at £149/t which is more or less where they have been trading since January.

The Matif May contract has expired, so there are no old crop ‘price benchmarks’, and as the July futures have only 276 lots, it is not fit for that purpose. Physical wheat supplies are tight in some areas of the UK so that in the South, wheat is trading at about £150 delivered to the mill, but north of Birmingham it is up to £7/t more. Harvest can be a moveable feast depending on the weather, so some new crop wheat is expected to be imported from France in late June and July. UK wheat futures had maintained import parity at €173 versus the Matif at €10/t lower, which probably explains UK May wheat prices levels. This is supported by HMRC data showing that the UK has been a net importer of wheat for the four months Dec-Mar, and the scale is surprising – we imported a net 100,000t in March.

The price graph for November wheat futures is reminiscent of a roller coaster. Starting a year ago there were a couple of big moves upwards from £125/t to £142/t, but since January has been trading in a range £136-142. When compared against the Matif December contract, we are about €7 cheaper which one would have to say is ‘normal’ as the Matif is a milling contract and the Liffe is a feed wheat contract. At the moment we would suggest that our new crop wheat is too expensive to export, which would be logical if we only produce 13.5mt. There are lots of harvest estimates and S&Ds, but with acreage about the same as last year, more barley being planted, more spring wheat which has only recently had a drink, the true picture is anyone’s guess.

In the rest of the world, the winter weather threats to the US growing crops seem largely to have abated, some areas replanted so the potential net damage in terms of quality and quantity needs to be assessed later in the season. Informa believe that the US will plant 89.7ma of maize (90ma USDA). Argentina believes it is currently harvesting 39mt maize (40mt USDA), which is about 32% complete. Demand for old crop US maize appears to be slow, global stocks are high, and more maize is coming into the world every day, so the analysts are predicting lower maize prices ahead.

The Commitment of Traders report showed that the funds have extended their net short position of maize to 26mt, and wheat to 15mt and soya to 5mt. Soya prices unexpectedly fell on Thursday by about $7/t. Brazilian President Temer is alleged to have been secretly recorded instructing someone to keep paying ‘hush money’ instalments to the former House Speaker Cunha who is currently in jail. Temer came to office after the impeachment of former President Rouseff. The reason for the payments is not clear: the impeachment, Petrobras or the recent meat scandal? All allegations are denied. But nonetheless, the Brazilian Real fell 8%, so farmers would get more Reals by selling a $-based commodity, so sold 2.5mt in one day!

Room 39 is a secret North Korean organization whose mission is to build a foreign currency slush fund for the country's leaders. Established by Kim Il-sung (Grandfather of Kim Jong-un) in the 1970s, it is believed to raise $1bn/annum by counterfeiting, heroin production and international insurance fraud. [Last month the UK froze the assets of the Korea National Insurance Corporation (KNIC) in London, as it was believed to be funding North Korea’s nuclear weapons programme].

Sounds like SPECTRE, THRUSH and HYDRA? Personally I prefer the 39 Steps.


Paul Poornan & Martin Humphrey