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Weekly Commodity Report w/e 14-7-17

On Friday 7th of July, November wheat futures closed at £151, and early last week hit £154.75 before losing momentum and finishing the week at £149.

The combination of a bearish USDA report and a better weather forecast burst the price balloon. It started raining across the northern corn belt, Iowa and Missouri, so all our prices paused in their upward momentum. As we explained in last week’s report, the huge price rise in global soya and cereals is (in our opinion) a massive over-reaction to a sub-optimal rainfall situation (aka drought) in a couple of US states which grow milling wheat. The drought map highlights the Dakotas, NW Iowa and NE Nebraska where all crops are stressed; however the 7-day forecast is for rain to hit the spot.

On Wednesday the WASDE report was the first of the year to estimate yields. Old crop wheat stocks were increased by 1mt to 4mt, and the carry-out was put at 32mt. New crop US wheat acreage was reduced from 46.1ma to 45.7ma (50ma last year) with an estimated yield of 46.2b/a, whereas some analysts were predicting as little as 20-30b/a for spring wheat. As a result, the USDA is predicting a crop of 48mt versus the trade expectation of 47.6mt. Spring wheat was put at 10.5mt whereas the trade had expected 11.3mt. In effect the USDA report made clear that there was a problem with spring wheat (and not with all wheat), and that the increase in winter wheat offset the lower spring wheat, so CBOT wheat fell $14/t b from start of Wednesday to close of Thursday. UK and EU values have slavishly followed the US market (goodness knows why!). The harvest is progressing well across Europe to the Black Sea and Russia, yields are apparently similar to last year.

In the period July16 to May17 the UK exported almost 1.4mt wheat, in the same period we imported 1.7mt wheat. As we have exported about 80,000t wheat and imported 394,000t in April/May we have added to this year’s carry-out which some estimate at over 2mt. Hence physical old crop wheat prices have been firm in recent weeks, as it is not envisaged that we will run out of wheat.

Soya prices also fell following the USDA report and weather forecast, even though China’s imports were increased from 89 to 91mt. Global old crop ending stocks were increased from 93 to 95mt; new crop ending stocks were put at 94mt. In the US despite reductions in crop ratings in the last fortnight and the lack of rainfall, the USDA did not reduce soya yields. In reality it is a month too early for credible information about maize and soya yields, so we will be in a weather market for the next month or so. On Monday GM soya was £315 ex-port for November-April, and by Friday had fallen £10/t.

Playing with water pistols is always good fun in hot weather. Mark Rober scaled up a child’s water pistol to the biggest in the world; the water shoots out at 270mph. It can cut through butter ... and eggs.


Paul Poornan & Martin Humphrey