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Market Review 4th Dec 2017

US/EU markets make new contract lows before consolidating late in the week, driven by fund short covering and US/AUS weather worries.

  • DEFRA suggest UK wheat surplus of 1.048mmt, down 35% on the previous year.

  • Exporting this volume may represent a challenge, however, failing a decline in values - with UK wheat expensive relative to other origins.

  • UK domestic consumption forecasts also under review in light of Vivergo’ downtime.

  • AHDB Early Bird plantings survey suggests a 9% drop in the UK’s winter barley area and a 2% drop in the all wheat area. Spring barley area forecast up 3%.

  • Sterling consolidates above recent lows, as agreement around the Brexit ‘divorce Bill’ appears to have moved closer.

  • Russian wheat exports have totalled 16.9mmt this season to date, 28% up on 2016/17. Barley sales of 3mmt, up 80% on last season.

  • US funds estimated net short 220.8k corn, 137.4k wheat.

  • Egypt buys Russian wheat cargoes with Romanian offers $5-10 too expensive.

WEATHER/CROP DEVELOPMENT USDA lower 2018/19 US wheat acreage estimate to 45m/a in their baseline projections (45m/a last season). Forecast for US Southern Plains appear dry in next 7-10 days, with moisture badly needed. Heavy rains for parts of Eastern Australia continue to hinder harvest progress. Up to 6 ½ inches reported in less than 24 hours in parts, with flood warnings in place for a number of areas. Harvest progress in Victoria/NSW is estimated at circa 30-50% complete. Wheat quality will be the big question for all unharvested crops in light of these storms. Scattered rains for parts of Argentina expected this week, though moisture levels remain below average for this time of year.

BOTTOM LINE: Two sided trade this week, as markets reach new lows before correcting. Dryness across the US Southern Plains, storms for Eastern Australia and SA weather will all remain closely monitored, whilst the fund short should provide underlying support to markets in advance of year end. That said, Global wheat fundamentals continued to offer little short term reason for markets to rally significantly, with cash wheat in plentiful supply. Expect range bound trade to continue for the remainder of the year, absent a sharp deterioration in US/SA/AUS weather.

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