The Morning Rant

08/12/11 -- London wheat has been stuck in a narrow sideways range of GBP140-145/tonne for three weeks now, does that suggest a bottom is forming or are we merely having a pause for breath before continuing with a downward trend that's been in place since April?

For me it's the latter. What will it take to break it out of this range and send me rummaging under the desk for the box with the threes in it? Friday's USDA report might do it.

The FAO have just announced that they see global wheat production in 2011 at a record 694.8 MMT, 6.5 percent up from 2010, 10 MMT above the previous all time high set in 2009 and 11.5 MMT more than the USDA said last month.

"Although prospects at the outset of the season did not point to such a strong growth, the record harvest materialized largely thanks to the bumper crops in the major producing countries in Asia and the sharp recovery in some CIS countries after drought last year," the FAO say.

That gives the USDA plenty of potential to raise it's own world production estimate and increase 2011/12 ending stocks even further from the existing ten year high of 202.6 MMT.

Meanwhile prospects for 2012 are "generally favourable" and in the US "early indications point to a considerable increase in the wheat plantings for harvest in 2012," the FAO add.

"Plantings may also increase in the CIS countries where, weather permitting, farmers would be keen to continue benefiting from attractive prices and strong demand in the region," they say.

The fundamentals appear to be stacking up against wheat, so what about outside influences? We'll know more about them tomorrow when the much-lauded EU leaders summit in Brussels concludes.

Personally I'm bemused by the market's seeming optimism that some kind of cure-all master plan will emerge from this.

The Germans are now also hinting along these lines. Cameron is now saying he won't sign anything that's against British interests. Merkel is standing firm. Sarkozy is trying to look tough in his platform shoes, conscious that he has an election coming soon. And then there's all the rest of the crew with their own personal agendas. In short it's a bit like trying to organise 27 tomcats.

S&P's have got fed up and now put the entire 27 nation bloc en-masse on watch for a possible rating downgrade, having already placed 15 of the 17 individual nations (including France and Germany) that use the euro on watch earlier in the week. Ironically the only nation that now isn't on watch with S&P's is Greece who have already been placed in room 101.

UK farmers don't want to sell at these levels that's for sure, but that's about the only weapon that they've got in their armoury right now. Unfortunately Russian, Ukraine, Eastern European, Australian and Argentine farmers ARE prepared to trade at these levels. Kazakh farmers dream of trading at these levels. Even India will be a net exporter of wheat this year, and they'll be harvesting what's anticipated to be another bumper crop in little over three months from now.

Doesn't look too bullish does it? Throw in a possible eurozone meltdown and GBP140/tonne would look like mega bucks.