Wheat: It Can't Go Much Lower, Can It?
When you look at the market what's to stop it? Demand is the only thing. November London wheat is up a massive 75p this morning as I type to GBP118, GBP200/tonne seems like a long time ago now eh? Still prices are significantly higher than what we had become accustomed to as being "normal" so where do we go from here?
If we look at the supply side it's difficult to see a serious problem emerging. Argentina will have a lower crop this year, maybe 1.5-2mmt lower, the jury is still out a little while longer yet on Australia. The AWB say 20mmt, others say maybe 24mmt, I don't think there is anyone seriously still saying 26mmt anymore. Even if we take a worst case scenario of say 18mmt, that's still 5mmt more than 2007.
So there we have it, the only serious producer & exporting nation in the entire world due a drop in production this year is Argentina, and thats only a measly 1.5-2mmt. Not a significant tonnage in the overall scheme of things.
Everywhere else output is up in the region of 15-25 percent. Including here in the UK.
We are facing a crop of around 17mmt, when we finally get it all in, up from 13.7mmt last year. And much of that is going to be feed wheat. In a normal year we produce around 4.5mmt of milling wheat, it seems beyond dispute that there has been some quality loss this season, the uncertain thing is exactly how much.
Lets be generous and say just half a million tonnes of anticipated milling wheat won't make the grade and will end up as feed wheat. That gives us 13mmt of feed wheat to consume of export.
The Ukraine have in many ways had a similar harvest to what seems to lie in store for us, huge - but largely feed grade. Eighty nine percent feed grade to be exact that's around 24.5mmt of feed wheat. In 2007 their feed wheat production was 7.8mmt. Right, so they've got three times as much feed wheat in 2008 to consume or export.
Dark horses Russia are also expected to have a relatively high share of feed wheat in its new crop. As mentioned on here yesterday official estimates of the final output there may have been somewhat understated.
They have harvested 48.1mmt of wheat to date in Russia off 58% of the planted area. That gives them the potential to bring in a wheat crop of around 80mmt. Russian production in 2007/08 was just 49.4mmt according to the USDA.
Lets be kind and assume that they have got a better quality wheat crop than the Ukraine, say 30% making milling grade. That still gives them a feed wheat crop of 56mmt. Domestically they consume about 14mmt of feed wheat, giving them a whopping 42mmt surplus.
Like I said, a crop 1.5-2mmt lower in Argentina doesn't seem awfully significant when you look at numbers like this.
To further my research I asked a compounder this morning was wheat attractively priced relative to other feed materials at the moment. His reply was that at GBP117 into his mill it was so, so. What surprised me was the answer to the question "at what sort of money does the magic computer start pulling wheat into the rations in significantly higher volumes?"
The answer: Dropping the delivered price by £10/tonne didn't actually pull in a significantly higher volume of wheat, he had to drop it £20/tonne to £97 delivered to do that!
If we look at the supply side it's difficult to see a serious problem emerging. Argentina will have a lower crop this year, maybe 1.5-2mmt lower, the jury is still out a little while longer yet on Australia. The AWB say 20mmt, others say maybe 24mmt, I don't think there is anyone seriously still saying 26mmt anymore. Even if we take a worst case scenario of say 18mmt, that's still 5mmt more than 2007.
So there we have it, the only serious producer & exporting nation in the entire world due a drop in production this year is Argentina, and thats only a measly 1.5-2mmt. Not a significant tonnage in the overall scheme of things.
Everywhere else output is up in the region of 15-25 percent. Including here in the UK.
We are facing a crop of around 17mmt, when we finally get it all in, up from 13.7mmt last year. And much of that is going to be feed wheat. In a normal year we produce around 4.5mmt of milling wheat, it seems beyond dispute that there has been some quality loss this season, the uncertain thing is exactly how much.
Lets be generous and say just half a million tonnes of anticipated milling wheat won't make the grade and will end up as feed wheat. That gives us 13mmt of feed wheat to consume of export.
The Ukraine have in many ways had a similar harvest to what seems to lie in store for us, huge - but largely feed grade. Eighty nine percent feed grade to be exact that's around 24.5mmt of feed wheat. In 2007 their feed wheat production was 7.8mmt. Right, so they've got three times as much feed wheat in 2008 to consume or export.
Dark horses Russia are also expected to have a relatively high share of feed wheat in its new crop. As mentioned on here yesterday official estimates of the final output there may have been somewhat understated.
They have harvested 48.1mmt of wheat to date in Russia off 58% of the planted area. That gives them the potential to bring in a wheat crop of around 80mmt. Russian production in 2007/08 was just 49.4mmt according to the USDA.
Lets be kind and assume that they have got a better quality wheat crop than the Ukraine, say 30% making milling grade. That still gives them a feed wheat crop of 56mmt. Domestically they consume about 14mmt of feed wheat, giving them a whopping 42mmt surplus.
Like I said, a crop 1.5-2mmt lower in Argentina doesn't seem awfully significant when you look at numbers like this.
To further my research I asked a compounder this morning was wheat attractively priced relative to other feed materials at the moment. His reply was that at GBP117 into his mill it was so, so. What surprised me was the answer to the question "at what sort of money does the magic computer start pulling wheat into the rations in significantly higher volumes?"
The answer: Dropping the delivered price by £10/tonne didn't actually pull in a significantly higher volume of wheat, he had to drop it £20/tonne to £97 delivered to do that!