Reduced wheat acreage on the back of poor conditions
Wheat markets have rallied this week, bouncing back from the sell-off that we saw last week as a result of the coronavirus.
London wheat futures recovered £4 per tonne from Friday's low point, also encouraged higher by sterling weakness versus the euro. A settled UK weather outlook is encouraging for potential spring plantings but winter drilling is now done. Unfortunately, the prospect of a 2020 wheat crop that is little more than half the size of the 2019 crop is a concerning likelihood.
Significant wheat imports next season will be essential and the value of sterling will be a major price driver. Weaker sterling leaves imports more expensive and allows domestic prices to rise. Despite a small crop, sterling strength would make imports cheaper and pressure domestic prices.
The UK wheat deficit will contribute to an EU soft wheat crop that could be 10 million tonnes lower than 2019; with smaller crops also looking likely in France and Germany. There are some concerns for the health of the French winter wheat crop, with ratings there seen at just 64% good-to-excellent compared to 85% this time last year. This is supporting new crop wheat prices and old crop support comes from the continuing fast export pace. Since 1st July 2019, EU soft wheat exports have reached 19.1 million tonnes – up 60% on last year.