UK wheat prices may prove the world's best performers thanks to the limited availability of export supplies, which could see shipments dry up early next year.

A report from a European commodities giant, obtained by Agrimoney.com on condition of anonymity, says that the region's wheat prices look set to "rise in relation to the world market" thanks to the clamour for its supplies by buyers left in the cold by Russia's ban since August on grain exports.

Quoting data from analysts at Strategie Grains, the commodities house said that the European Union was on track to export wheat "until we're basically on bare boards".

"The EU [2010-11] ending stock is put at 9m tonnes, which is a stocks-to-use ratio of just 7.6%, or 27 days' supply," the report said.

The EU's stocks-to-use ratio for all wheat at the end of 2008-09, after a bumper crop, was above 12%, according to US Department of Agriculture data, which set the world benchmark.

"So, on a local basis, there seems little reason for wheat markets to go down."

Export question

UK prices looked "especially" likely to outperform, given the dearth of supplies available for export, with domestic demand swollen by extra wheat ethanol capacity.

Indeed, the commodities merchant sided with an estimate from the UK's Home Grown Cereals Authority that shipments would near-halve to 1.3m tonnes in 2010-11, rather than Strategie Grains' 2m-tonne forecast.

The Strategie Grains figure assumed a forecast of UK harvest of 15.1m tonnes, higher than the HGCA's 14.8m tonnes, with many market, such as grain merchant Gleadell, estimating a crop of 14.6m tonnes or less.

'Very tight second half'

Furthermore, Strategie Grains assumed UK inventories ending the crop year at 1.6m tonnes, a figure which appeared low given that they had not below 1.72m tonne in the last decade.

"The HGCA report looks more convincing and it means that exports could be drying up quite early in the New Year," the commodities giant said.

The forecast was echoed by UK grain merchant Frontier Agriculture which, noting "above normal selling volumes", said that "we are going to have a very tight second half of the season, given the tonnage shipped since August".

UK exports shipped so far in the 2010-11 crop year, which started in July, are estimated in the market at about 750,000 tonnes.

'Defined downtrend'

Nonetheless, while European prices may be set to outperform, this may be against a declining market, given buyers' willingness to hold on for supplies from Argentina and Australia, the big southern hemisphere producers.

"There is no guarantee that the world market will maintain its current price range," the commodities giant said.

And Jamie Nolan at FC Stone's European office highlighted that a weaker dollar may dampen demand for European grain exports, making shipments from the US more competitive, while "heavy" buying by wheat users in Paris earlier in 2010-11 had limited their demand for now.

"With much of the French crop already forward sold, and a large percentage of commercials and of course main importers such as Egypt covered out to December, it would appear as though near term cash bid/offer spreads may be turning in favour of buyers," Mr Nolan said.

 "[This] may be a partial explanation for the stronger inclination of European wheat futures values to trade with more defined downtrend these last few days versus wheat futures in the US."


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