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Weekly Commodity Report w/e 5th January 2018

UK May wheat futures have traded between £140-£143/t since the end of November and are currently trading mid-way at £141.50/t.  There has been very little volatility for quite some time and the trade is getting bored.


UK May and November wheat futures have been almost identical since September but a small gap has appeared so May is about £1.25/t cheaper than November, possibly reflecting the Vivergo closure, and the relative surplus on the UK market.  The Matif March wheat contract touched contract lows this week as the EU is suffering from export constipation whilst the Russians continue to dominate global wheat exports.  Whilst Black Sea temperatures are cold, and near-zero East of the Crimea, the sea is not frozen yet.  Thus UK and EU wheat exports are negligible and stocks are building; one analyst estimates that the UK could have a closing stock of 2mt.  Michael Gove, the Defra Secretary, attended both of the Oxford conferences this week, the Oxford Farming Conference and the rival Oxford Real Farming Conference.  He committed to guarantee the same level of subsidies under the basic payment scheme of the CAP for a period of five years following Brexit, which is a relief to many – let’s wait for the small-print.

In the US, the March wheat futures hit contract lows in mid-December but are currently experiencing a small recovery.  US wheat exports are still lower than expected despite their relatively competitive prices with weekly exports estimated in the range of 225,000-500,000t.  There is concern about the bitterly cold conditions (-24 degrees C in Kansas) across the US farm belt and the potential for winterkill which has supported all US crops.  About 25% of the hard red wheat belt is reportedly damaged.  It is so cold that the Illinois River, which is a principal tributary of the Mississippi River, has frozen over although still passable to barges.  The risk of cold weather to crops extends to Europe, Russia and the Ukraine where low snowfall increases the risks of frost damage to crops.


Soya news is focused on weather forecasts for Argentina and Brazil.  The Brazilian weather forecast is currently positive.  Brazil’s December soya exports totalled over 2.3mt according to the Trade Ministry, which is almost four times more than the same period in 2016.  The Argentine weather is a bit like the Parson’s egg, good in parts (and rotten in others).  In northern Argentina, northern Buenos Aires, central Santa Fe, and northern Cordoba the weather is too dry and warm.  The ‘drought’ word is now openly expressed.  On average Argentina has yet to plant 20% of their soya and about 30% of their late-planted maize as they have only received two inches of rain in the past three months.  UK soya prices have lifted by about £10/t this week to £305/t delivered to the mill. 

The funds are about 20mt short (have sold the market) of wheat, 26mt short of maize, and 10mt short of soya.  As a total, this is the biggest short positions we have seen since May 2017.  As funds tend to offset positions to limit exposure, it may be that they are shorting commodities and going long of equities.  Is it a coincidence that the FTSE and DOW Jones hit new records this week? The Trump tax cut makes US equities a good bet, and the $ remains generally weak continuing a trend seen in the last few months which could support commodity prices in markets where bearish supply and demand trend have not changed in some time.  The £ is generally in a stronger trend against the $, and is relatively static against the €. 


Archaeologists in Alaska have found an 11,500 year-old skeleton of a baby girl and analysed her DNA which is unlike any ancestor previously encountered.  Her DNA indicates that 20,000 years ago an East Asian group crossed to North America across a now-submerged land called Beringia, connecting Siberia and Alaska. 


The local indigenous community have named her ‘Xach'itee'aanenh t'eede gay’, meaning ‘Sunrise girl-child’.  Prior to Sunrise girl-child, geneticists only had the DNA of more recent Native Americans and ancient Siberians to try to work out the relationships and times of divergence.