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Weekly Commodity Report w/e 23rd March 2018

UK wheat dropped, showing a change of trend this week in the wake of a strengthening Sterling which jumped to a 9-month high against the euro at one point.  With bases for agreement reached on a Brexit transition deal which would see the UK remain a member of the single market and customs union through to the end of 2020 driving much of the currency strength.


Wheat prices have fallen back to levels seen at the beginning of March, with the May Futures price ending the week at £142.00.  This has corrected some of the uplift over the previous few weeks for which the price rise related to the Vivergo plant which had been mothballed in December last year due to lack of profitability being somewhat surprisingly re-opened. Although it is not expected to be operating at full capacity (requiring 1.1mt wheat /annum), it is reported to be need 75,000t of wheat per month at its current rate of production.  Thus the UK wheat balance sheet has shifted, and supply is slightly tighter.  Imported old crop feed wheat is now competing into some northern UK market while most is still being hauled from the South to the North.   Consequently, feed wheat price differences between the north and south continue with a value at £148/t delivered to our mill today, and about £171/t delivered up north to the Vivergo factory.

Matif wheat futures edged higher, on the back of a weakening Euro after The International Grains Council (IGC) estimated the 2018-19 end stock of grain at 560mt, down 46mt from last year.   This drop was mostly from maize (down 40mt) with the remainder from wheat.   In the US wheat futures closed higher.  Changes to the weather report for the next few weeks for the US south plains with drier estimates back in the news supported wheat futures.  The market continues to be supported by historical lows going into a new global marketing year with World 2017/18 supplies still being at record high levels.  Globally, wheat production is estimated to reduce this year by 17mt to 741mt, with Russia leading the decline, although planting in the US is progressively reducing, year after year.


Soyabeans followed the cereal markets lower this week.   Reports show the US will plant a record amount of soyabeans in 2018 and the continuing trade dispute (lets not say 'war') between China and the US is greatly hindering the price of soya.  The trade wait to see if China retaliates and though it could be seen as an opportunity to other origins of soya if the Chinese place tariffs on imports from the US the initial market reaction is `uncertainty’.   The IGC reported global soyabean production could increase in 2018/19 to a new record high of 354 million tonnes.  While it cut its forecast for 2017/18 global soyabean production by 6Mln T to 341Mln T due to continued poor conditions in Argentina.  This week estimates of between 47Mln T (USDA) and 39.5Mln T (BA) for Argentina soyabean crop were provided, with the Brazilian soyabean crop estimates of 113-115Mln T.  This uncertainty is further making the market clouded and slowing the trade.  Share investors are selling in the stock markets with the Dow Jones industrial average, down 2.9% overnight and Shanghai stocks closed down 3.4%.


In my idealistic head, Mongolia is such a remote and primitive spot it must be very clean and untouched by modern society.  The truth is that Mongolia’s capital city, Ulan Bator (1.5m residents) is the both the world’s coldest capital city and has the highest recorded levels of air pollution - surpassing that of notorious megacities such as Beijing (population 21m) and New Delhi (population 26m).

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In winter the temperature falls to -40 degrees in both Centigrade and Fahrenheit, so as the majority of the population live in yurts, to survive they must burn coal (and old tyres).  On January 30th, Ulan Bator recorded 3320mg of particles/cubic metre, 133x the level the WHO believe is safe, and 6x the hazardous level.  Air pollution is responsible for one in every ten deaths, so now there are incentives to install modern and more efficient heaters.  The government wants to ban coal from next month, which may have unfortunate consequences.