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Weekly Commodity Report w/e 5-5-17

May wheat futures prices lunged upwards to £150/t midweek before trading at about £149.25 on Friday. The May futures contract is due to expire in 18 days, and the Open Interest has declined from 4000 contracts to about 800 in the past month.

The next futures contract is July, which only has a pitiful 276 contracts, so the futures market is effectively dead (insufficient liquidity) until harvest. Two weeks ago, there was a €12 difference between the Matif and the Liffe (€7 difference today), making it possible to import wheat from the Continent to the UK; and there are rumours that deals were done to import new crop wheat from France to the UK in late June/July. Thus prices are being determined by physical trade, with higher wheat prices prevalent in the West and in the North. As we are at import-parity, it seems unlikely that wheat prices will rise significantly. However there is significant downside potential as we approach harvest.

Since February, November wheat futures have been trading between £136 to £142/t, and are currently trading at £140/t. This implies that in August, new crop wheat will be about £138/t delivered to the mill, versus old crop at about £155/t on the same basis.

Last weekend, the US had a 'weather event'; up to 21 inches of snow that covered (flattening) about half of Kansas’ wheat acreage, followed by three nights of sub-zero temperatures. The extent of the damage and potential loss is as yet undetermined. Up to 5 inches of rain hit Missouri, Illinois and Indiana with the resultant flooding damaging all crops. The adverse weather means that delayed planting could also reduce yields.

There are questions about how many maize acres will be switched to the later-planted soya. As of the 25th April, the funds were holding a record short position in wheat, and overall net short of 22mt wheat, 25mt maize, 6mt soya; possibly at the limits of their financial capability. Thus the unexpected weather frightened some of the funds so that short covering lifted prices early this week.

In South America, the soya crop is in the Brazilian barn, and all the silos are full. However the safrinha maize crop will soon be ready for harvesting, and there is little spare storage. As domestic soya prices are low, and maize prices below the cost of production Brazilian farmers will be very reluctant sellers. It is likely that significant volumes of maize will have to be stored outside, with potential consequences for unwary buyers. After the January floods in Argentina, and further heavy rains a few weeks ago the flooded areas depressed yields by an estimated 1.7mt, leaving 30.6mt to be harvested. Yields in the non-affected areas are said to be very good with estimates averaging 3.4t/ha. The Argentinean soya crop is 60% harvested with 80% of their maize crop already in the barn. GM soya is about £300 delivered to the mill.

Molecular scientists have examined chicken bones from archaeological sites to determine that the genes governing the traits of passivity, increased egg production and the ability to live grouped together with other birds (in a coop) emerged in chickens from about AD 900. The THSR gene determines the level of aggression, and it would appear that natural selection (and possible human intervention) allowed chickens with the more docile variants of the gene to survive.

The hypothesis is that poultry management and selection by monks accelerated the domestication of the chicken. In the 6th century St Benedict put his Christian ideals on vellum; how monks should live and behave to become ideal Christians (Rule of St Benedict). Meat from four-legged animals was prohibited (except for the sick), so fish and eggs became part of their staple diet.

[End of Chapter 39,
Or from the Radio 4’s Sunday programme yesterday: - propel the cursor on to 33 minutes in.]


Paul Poornan & Martin Humphrey