Short-term outlook for high wheat prices; uncertainty ahead


The surge in wheat prices should continue in the near term as markets remain bullish.

This week, the London feed wheat futures contract from November 2021 climbed to £ 208.50 / ton, a jump of £ 8.50 on the week.

However, a more bearish longer-term outlook from the US Department of Agriculture Global agricultural supply and demand estimates report and the AHDB suggest that prices may start to fall.

Wheat stock levels in major exporting countries are at their lowest level since 2008, according to the AHDB. This, coupled with a tight supply of wheat in the northern hemisphere due to adverse weather conditions in the United States, Canada and Russia, are pushing world prices up.

However, one of the key messages of the AHDB Cereals market outlook on Tuesday, October 12, harvests in the southern hemisphere are likely to dictate the development of world grain markets in the coming months.

At the conference, the Grains and Oilseeds team presented their forecasts for domestic and global markets and supply.

Domestic wheat markets

Helen Plant, AHDB senior analyst, said although production was higher – with Defra estimating the UK wheat crop in 2021 at 14 million tonnes, up from 9.7 million tonnes in 2020 – there were major quality problems.

“The amount of Group 1 milling wheat samples making the specification this year is estimated at 23%, down from 32% the year before,” Ms. Plant said.

This fueled higher premiums for milling wheat to hit £ 34 / t, from £ 19 / t a year earlier.

Another driving force behind the wheat market is the E10 ethanol blend for gasoline, which was introduced in September. It helps boost the production of ethanol in the UK, where heat is the main raw material. The use of animal feed is also expected to increase the demand for feed wheat to some extent, according to Plant.

Market sentiment

Market sentiment (next two weeks)

  • Wheat – slightly bullish
  • Barley – slightly bullish
  • Corn – neutral

Market sentiment (next six months)

  • Wheat – slightly bearish
  • Barley – neutral
  • Corn – slightly bearish

Source: AHDB

Aggregate demand

Global demand for wheat is expected to increase, with increased demand reported from India and China.

The high chances of a weather event known as La Niña in South America and Australia could reduce yields in the southern hemisphere.

Current high global prices provide an incentive for 2022 harvest plantings, but it is not known if this will materialize.

Barley

Short-term demand for barley is expected to remain bullish as supply remains tight.

Ms. Plant said, “We have seen challenges with production in the northern hemisphere, particularly in Canada. Global stocks are expected to fall to their lowest levels in modern history. “

The demand for barley for animal feed would decline year on year, with increased demand for wheat and oats. Exports could also fall back below last year’s levels.

Defra estimated the UK barley crop at 7.1 million tonnes, down 1 million tonnes year-on-year, with barley currently enjoying a £ 14 / t rebate compared to wheat.

“Barley needs to close the gap compared to other grains. He cannot step up to a bigger discount – he must reduce the demand for feed globally and UK to cope with the fact that global supplies are tighter this year, ”said Ms Plant.

But

Maize continues to provide the floor to support grain prices in the UK, said Vikki Campbell, AHDB’s head of arable markets.

“We had record corn imports last season, and a tight situation going forward, so there will always be this need to import corn,” Campbell said, adding that the global supply situation is tense and that the world is banking on a great South American Culture.

Global markets have been buoyant throughout the year with steady and bullish demand. China imported large volumes of corn, but demand weakened.

“The logistical problems in place in the UK right now may mean that the rebate for corn needs to expand to make it more attractive for food inclusions,” Ms Campbell said.

USDA WASDE Report – Key Changes

The Global agricultural supply and demand estimates (WASDE) report is important for trade and prices. The most recent report was released on Tuesday, October 12 after the AHDB event closed. Market analyst CRM said the report was moderately favorable for wheat, but slightly bearish for corn and soybeans.

Corn Global consumption forecast for 2021-2022 is down 2.6 million tonnes to 787.1 million tonnes, but up from 781.2 million tonnes the previous year. US production was revised down from 1.4 million tonnes to 44.8 million tonnes, in line with industry expectations. Canadian wheat production has been revised from an additional 2 million tonnes to 21 million tonnes. The U.S. end-of-season inventory forecast for 2021-2022 is the lowest since 2008.

But The USDA report suggests higher production in the United States, larger opening stocks and increased exports. World coarse grains production forecast has been reduced from 2.9 million tonnes to 1.49 billion tonnes, but still up from 1.43 billion tonnes the previous year. Canada and the EU both increased production, while yields in Russia and Ukraine were lowered based on current harvest results.

Oilseeds The report revised US soybean production up from 1.5 million tonnes to 130.8 million tonnes. Oilseed production for the rest of the world was reduced by 2.4 million tonnes to 497.4 million tonnes, but it is still up from the 477.7 million tonnes produced in 2020-21. Production estimates have been revised downwards in the EU, Argentina and India.



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