Farmers’ refusal to sell at current prices, along with a weak pound, is bolstering a UK wheat market that is struggling with a bearish fundamental outlook. The premium for holding stocks into the new season looks attractive.
“It is very hard to build a bullish picture on the wheat market at the moment,” David Elderkin, trader at Fengrain, told Agritrade News.
He described the old crop market as ‘range bound’, with some support from a weak sterling and shippers’ requirements into the East Coast ports. “This support however, has failed to stimulate the farmer to any degree,” he explained. “Domestic consumers remain happy to stand back hoping that the shippers support will erode as April turns into May.
“May is traditionally a month for a large volume of trade and merchants’ books are usually bursting at the seams with supply,” Mr Elderkin continued. He wondered whether demand could outstrip supply with a weak sterling and the possibility of more export and domestic demand. It depends on the final size of the 2015 wheat harvest.
“NFU said 16.73 million tonnes,” he said. “If it is that or more, then we have a long way to go.” He pointed out that the spread in London futures values was around £13 a tonne between May and November. “This will take up a significant amount of the 2015 supply,” he predicted.
He described the latest export figures as “not too exciting.” “I still believe that the UK wheat production figure was 17m tonnes,” he continued. “We are projecting the imports for the season, because they are still strong, at 1.45m tonnes. We see the export figures at around 2.25m tonnes of wheat, which gives us total commercial closing stocks of nearly 4.8m tonnes, of which 1.7 million is usually the strategic stock that we carry anyway.
“So that gives you just over three million tonnes that hasn’t got a home at the moment,” he concluded. “I don’t believe that those figures can be much disputed.
“The French have done a little bit better recently, but again they are still looking at a big carryover,” Mr Elderkin observed. “Europe is awash with wheat and the new crops look very promising at the moment. OK there’s a long way to go, but they do look promising. The time for weather events is running out.”
Even so, he stressed the importance of farmer resistance at a time when the East Coast ports have been active. “Farmers had been drilling or holidaying or they don’t like the prices,” he said. “They’ve seen the market go up a pound or two, and they have closed the gate. That does have an effect, and when combined with the weak pound, has probably kept the market where it is.
“I still believe that at some stage the weight of the crop has got to play its part,” Mr Elderkin concluded. “The fundamentals will kick in at some stage. When is the $64,000 question.”