A weather scare or political upheaval may be needed to avoid a sell-off in UK wheat prices, a leading commentator said, after data showed the country’s exports off to a poor start to 2015, particularly to buyers within the European Union.
UK wheat exports in January came in at a five-month low of 137,378 tonnes, customs data showed – a decline of 39% on the December figure, and below market expectations.
Indeed, traders at a major European commodities house said that the figure “looks even more disappointing” when compared with imports for January of 110,651 tonnes, meaning the UK, historically a significant net exporter of the grain, has an even balance sheet this season.
In the first seven months of 2014-15, which started in July, the UK has exported 1.076m tonnes – only 5,971 tonnes more than it has imported.
The unconvincing export performance – even at a time when official data shows an exportable surplus of some 3.5m tonnes for 2014-15 – reflects in part the weaker euro, the European commodities house said.
While sterling depreciation against the dollar “is great for 50,000-tonne cargos being loaded out of the deep water ports for the Far East, which get paid in big fat dollars”, most UK exports historically have headed for other European Union countries.
Many EU countries which pay in euros – which have lostsome 9% of their value against the pound so far in 2015.
“Coasters loading out of the smaller ports are almost inevitably headed for the Continent where the shipper gets paid in feeble euros,” the traders said.
“The problem is that to get rid of the UK’s surplus wheat stocks, we need both large and small ports running full tilt.”
While many observers had foreseen that January might prove “rather thin on exports – mainly because there was a lot of wheat coming out of Russia ahead of the export tariff – it was made much worse by the near-absence of the regular, week in, week out, trade to the near Continent”.
The data left the UK with a “rather scary” challenge to erode its wheat stocks, or risk significant pressure on prices, said Richard Whitlock, a veteran grain trader with the likes of Frontier and Cargill Banks, who is now a grains and biofuels consultant, and a board member at the UK’s HGCA bureau.
“We have to be getting basically flat out every week with our exports, and we are not doing that,” he told Agrimoney.com.
“It looks like we have been pootling along on exports since January, but there has been no big pick-up.
“Farmers are reluctant sellers – there is not much interest at these prices.”
Reason for comfort
In fact, it may require “uncertainty in the weather, or uncertainty in politics and economics, perhaps a flare-up in the Middle East”, to keep wheat prices even at current levels, he said.
Prospects for domestic UK demand have been compromised by the, temporary, closure of its two ethanol plants, which have capacity for more than 2m tonnes of grain a year.
Nonetheless, farmers may “quite understandably, be taking comfortable in the reasonable carry” in London futures, with the market, unusually, showing a steady and uninterrupted rise from the spot March contract, which closed on Monday at £118.95 a tonne, to the January 2017 contract, which finished at £136.70 a tonne.
Typically, the first new crop contract, for November delivery, trades at a discount to the last old crop contract, for July.
(Source – http://www.blackseagrain.net/novosti/weather-political-scare-needed-if-uk-wheat-price-to-hold)