London wheat futures dodged the worst of a tumble on other markets on Thursday – although that was seen as down more to sterling weakness than officials unveiling a 12% drop in the UK harvest.
London wheat futures for November stood at £128.30 a tonne in late deals, 0.3% lower on the day, although remaining at among their highest levels of the past six weeks. Indeed, futures proved far more resilient than those in Paris, where the December contract stood 1.6% lower at E158.00 a tonne, while the December lot in Chicago, the world benchmark, was 2.7% down at $3.94 ½ a bushel, undermined by disappointing US export sales data for last week.
‘Nothing to write home about’
The outperformance in London followed the release by Defra, the UK farm ministry, of its first estimate for the newly-finished harvest showing production at 14.47m tonnes – the weakest result in three years, and a drop of 12.0% year on year. However, the figure was “in line with five-year average 2011-15 of 14.7m tonnes”, Defra said.
And the estimate was broadly in line with market expectations, which started the summer at 14.2m-15.2m tonnes, but with the top end of the range falling below 15m tonnes as harvest results came in. “It might be 100,000-200,000 tonnes light of some forecasts, but nothing to write home about,” a UK grain trader told Agrimoney.com.
Indeed, the resilience in futures was attributed to a further fall in sterling, which stood 0.9% lower at $1.2641 to £1, having earlier touched $1.2621, a fresh 31-year low. Sterling weakness raises the value in local terms of assets, such as wheat, traded internationally in dollars.
The pound, which suffered an initial blow in June after the UK voted to leave the European Union, has suffered further damage this week as comments by ministers at the ruling Conservative Party’s annual conference were seen as raising the chance of a so-called “hard Brexit”.
This option, which would involve the UK cutting trade ties with the European Union, is deemed by investors as offering greater economic risk than so-called “soft Brexit”, in which a closer degree of relations is maintained. “Currently, UK feed wheat is being directed by the daily moves and overall trends of the pound,” CRM AgriCommodities said. Currency always has a much bigger effect on prices in oversupplied markets which is the case of the UK – harvest satisfactory and large carryover stocks.
Good export pace
Still, the UK is making good headway at eroding its export surplus, pegged at some 1.5m-2m tonnes, the trader said.
“We will have had 500,000 tonnes done by the end of September,” that is in the first three months of the 20016-17 marketing year, the trader said, noting large cargos already loaded or due at Sheerness, Avonmouth and Immingham ports. Shipments are being led by higher-grade supplies, with demand for feed wheat shipments “pretty much non-existent” given the low-quality of the world’s record wheat harvest.
With France’s supplies of low quality, following persistent rains, importers from the EU “will have to consider coming to the UK instead,” the trader said. “A lot of France never had any supply of malting barley or milling wheat this year.”