With country after country downgrading its wheat yield estimates through July, as the impact of dry weather on yield became apparent, prices have risen rapidly over the last month or so.
On August 1, Zoe Andrew of Frontier calculated that cash prices to farmers for September wheat had risen by £24/t since July 1 and were £52/t higher than in January. AHDB reported that the LIFFE Nov-18 futures contract closed at £189.75/t on August 1, the highest November price for the start of August on record.
Ms Andrew says: “There are production issues around the world. In the last five years, there has been good production with no major weather issues but this year is different.”
Rupert Somerscales, consultant at ODA says Russia and the European Union will produce 35 million tonnes less wheat this year, than last. “The viciousness of this rally is because of the speed at which these crop problems emerged; people are finding it difficult to adjust to it.”
So how long are prices likely to remain on an upward trajectory? Mr Somerscales says: “It wouldn’t surprise me at all if it has further to run. We can expect more volatility in the coming weeks until more is known about the French maize crop. In the last day or two [Aug 1-2] we have become a little bit more concerned about it.”
The US maize crop has performed well and if maize does well elsewhere, could be one of the few bearish factors impacting on the feed wheat market, says Ms Andrew. “Some rations which have usually taken feed wheat could switch to corn which could take some of the excitement out of the market.”
Meanwhile, farmer selling has been active in the last couple of weeks, she says. “A lot of farmers with wheat in the shed have sold or feel happy to commit but there are some that haven’t.
“When prices have gone up as fast as they have the top of the market is a very difficult one to pinpoint. What we can say is these prices are profitable for farmers – more profitable than we have seen for some time.”
AHDB is predicting a 13.3-13.7 million tonne wheat crop for the UK, with yields 5-8 per cent below the five-year average.