Renewed optimism underpins prices (From Gazette & Herald)

Renewed optimism underpins prices

9:40am Wednesday 8th February 2012 in Farming news

In her monthly column for the Gazette, EMMA CROFT of Anderson Grain Marketing Ltd analyses the global grain market

JANUARY has brought an unexpected, albeit welcome, start to 2012 for the grain markets. Front month London wheat has now gained almost £25/T since the pre- Christmas trades in the low £130s/T and although prices have levelled over the last couple of weeks, the upward trend has continued.

Similar external influences to those described last month have continued to determine price direction over the last four weeks and are set to remain central throughout February; but this time round with a noteworthy underpinning of optimism.

The long-term crop damage caused by the rainfall shortage and high temperatures in South America has continued to be subject to debate; for some initial yield reduction estimates were overly positive and much of the damage done is now irreversible while for others, the damage done is hardly significant enough to offset record maize/soybean crops.

Elsewhere, unforeseen low temperatures across Eastern Europe, Ukraine and parts of Russia (including the central/southern areas) are beginning to cause further wheat yield concerns. Again, however, the extent of the damage done remains largely speculative; winterkill is extremely difficult to predict and is largely variable depending on soil moisture, adequateness of snowfall and the initial establishment of the crop for example. Furthermore the extent of the damage caused will not be visible until the crops begin their regrowth in the spring.

Trading volumes have continued to be mixed despite higher prices.

While farm sellers on the one hand are encouraged to trade as ex-farm feed wheat moves into the £160s/T, finding a spot buyer to meet these levels is proving rather difficult.

For the buyers, LIFFE futures are being driven by ‘the suits in the city’ investing in and out of commodities rather than a physical demand for grain and consumers are therefore reluctant to meet the ‘on screen’ prices.

Thursday’s release of the latest WASDE from the USDA (global supply and demand) could see some revision of stock estimates and perhaps a more long-term indication of price direction.

As for the month ahead, the grain markets remain optimistic but notably unstable; an awareness of external influences and careful observation of subsequent market movement is therefore key to negotiating selling opportunities over the next four weeks.