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London wheat closed 75p up on the day, market sentiment went from ultra-bearish to short term semi bearish. UK wheat export is revised slightly up to 1 mmt end December (as expected).
Demand to the ports, in the spot position, has seen physical values against futures widen, growers remain reluctant sellers.
On paper, there are plentiful amounts of wheat available but with the May – November carry currently at £12, there is an incentive to hold.
Currency has recently been given market direction. The Euro is currently 1.28 to the £ (1st December 1.42+), this is helping UK in export markets; ‘Brexit’ and poor economic numbers is leading some analysts to predict a fall to 1.20 before recovery. $ is also weaker after Chair J.Yellen of the Fed confirmed no further interest rate rises were imminent, weaker $ supports agricultural commodities.
US markets were helped by weaker $ and firmer oilseed / bean markets as world palm oil stocks reduced.
Funds were buying as they reduced shorts, there were rumours that one major fund wanting to ‘liquidate’ all ag commodity positions.
Markets appeared to have factored in Monday’s bearish USDA report, world wheat stocks increased by 7 mmt to record 238.9 mmt (+ 20 mmt last season).
French markets still nervous after cargo rejects in Egypt due to ergot
Recent rise in oil prices, a ‘false dawn’ according to International energy Agency; they expect stocks to grow by 2 million barrels a day in the first quarter 2016 (demand down, production up)
Currently brent crude c. $30 having hit 13 year low, January $27.67; June 2014 it was $112.
On the fundamental side, disastrous Indian harvests will mean increased imports, there is also concern of winterkill in Ukraine / Russia (spring drought biggest threat to eastern Europe crops); however heavy stocks are insurance against supply threats.
With stock and oil markets continuing to struggle there has been a switch of investment into gold and government bonds, will agricultural commodities have appeal as investment opportunity? Chance of La Nina after El Nino is predicted up, this can impact on grain areas e.g U.S corn belt.
Chinese markets closed as they celebrate new year and year of the monkey starts. author: Joe Beardshaw