Wheat Market Update - What happens next?

Thursday 3rd October 2024

Welcome to this week’s market update! Each week, we'll delve into the market movements and key factors affecting wheat prices. Whether you're a fellow industry professional, a supplier, or simply interested in what’s happening in the market, our updates will offer valuable insights to keep you ahead of the curve.

Global Focus

The big news this week is the sharp escalation of the conflict in the Middle East. Markets reacted to news that Iran was planning to fire missiles into Israel. This escalation helped push wheat futures to multi-month highs. Concerns over dryness in Australia and Argentina, combined with weather risk in the northern hemisphere for the winter sowing campaign, added further support to markets.  Many commodities markets continued to attract buying amid ideas of stockpiling for fear of disruptions and higher oil prices prompted by the Israel-Iran conflict. Downgrades to Russian wheat exports and a large Egyptian tender for black sea wheat further helped support the market.

UK Focus

The physical market for wheat in the UK remains slow. Milling wheat premiums have softened slightly with higher protein imports available to millers at only a small premium to domestic supplies.  With harvest now finished across the country, the overall quality is not bad, although wheat proteins are below average. Considering the very wet late autumn and winter, it’s the best we could have hoped for. Since the last report on the 16th of September, we have seen the LIFFE Nov 24 position increase from £186.05 to £190.15 (+£4.10).  The May-25 position increased from £198.10 to £204.85 (+£6.75), and the Nov-25 position increased from £195.40 to £203.60 (+£8.20)

Summary

Market prices are moving up and are at multi-month highs. Serious escalation in the Middle East will make markets even more erratic, introducing even more uncertainty into an uncertain market.

It is common for commodity prices, including wheat, to rise during times of uncertainty or supply disruptions. Events such as the war in Ukraine and escalating tensions in the Middle East can contribute to fears of further supply disruptions, pushing prices to multi-month highs.

Increased Volatility: Geopolitical tensions create market instability, leading to price swings. When there is uncertainty, traders may struggle to predict supply and demand conditions, resulting in more erratic price movements.

Farmer Behavior: Uncertainty often encourages farmers to hold off on selling their crops, as they might anticipate higher prices if supply shocks worsen. This "wait and see" approach can tighten immediate supply, further pushing prices upward.

Consumer Behavior: Consumers, especially large buyers like mills or food producers, may seek to secure their supplies more aggressively. This could involve "covering" by buying larger quantities than usual, to hedge against future price spikes.

Speculator Behavior: Speculators tend to go long (bet on rising prices) in times of geopolitical tension and uncertainty. The prospect of disruptions to production, transport, or global trade can drive speculators to anticipate higher prices.