David Sheppard, Gleadell’s managing director, comments on the WHEAT market

All markets are firmer on the week as crop concerns intensify.

US wheat, which had been tracking the EU market, rose yesterday as disappointing spring wheat yields from the Wheat Quality Tour pushed up the Minneapolis market, which dragged Chicago in its wake.

The US market, which had seen limited gains recently, mainly due to the improved outlook for spring wheat crops and the current slow pace of US shipments (down 41% year on year), took support from a further decline in EU production and valid crop issues across much of the Northern Hemisphere and Australia.

EU prices, up €17/t on the week, remain well supported by ongoing crop concerns. Dryness continues to lower crop prospects in much of the northern parts of the EU, while excess rain in the Ukraine and parts of Russia during harvest has increased talk of sprouted grains.

Strategie Grains further reduced its EU wheat production to below 130mln t, which would be the lowest crop since 2012. The exportable milling surplus in the EU is diminishing by the day, meaning that EU exporters should not need to chase non-EU markets as intra-EU demand will be robust enough to mop up the majority.

Egypt’s state buyer GASC announced another tender, paying about $15/t more than two weeks ago, snapping up 420,000t of Russian, Romanian and Ukrainian offers, in a deal that now looks very cheap. It shows how quickly markets can move.

The UK market, in its position as a net importer for 2018-19, has also firmed on the week, moving up £17/t on the week.

Although harvest has begun historically early this year, and provisional results show quality and bushel weights better than expected, the market has reacted to the general firming of global markets and the perception that UK yields, whilst not as bad generally as some feared, are lower.

As wheat prices move to their highest levels for several seasons, the outlook remains one of a very tight balance sheet, with any potential easing coming from a decline in domestic demand, or an increased level in imports.

Gleadell comment

Black Sea and EU crop issues have intensified. China is increasingly becoming a worry and Australia remains dry. The supply side of the global balance sheet continues to shrink, along with the world’s major exporters’ surpluses.

News from the US crop tour may have awoken a sleeping giant in the form of the Chicago fund managers. With the corn balance sheet looking robust and soybeans reacting to Donald Trump’s $12bn aid package, the commodity rally seems to be gathering pace.

Jonathan Lane, Gleadell’s trading director, comments on the OSR market:

In an attempt to overcome the impact of the sharp decline in soybean prices on domestic US farmers following China tariff impositions, President Trump announced a $12bn support package, which provided the catalyst for a 40c rally in soybeans from its recent lows.

Additional support may well come from this week’s US-EU trade summit, following EU Commission president Juncker’s announcement that the EU will import more US soybeans, and that both sides would work together to reform the WTO.

Despite these measures the oilseeds complex has been the poor relation in terms of the ongoing grain rally, but prices have still benefited from spillover buying. CBOT soybeans have rallied and Matif rapeseed futures have followed, as the Matif continues to deal with declining yields and farmer retention.

In the medium term we need to be mindful about the demand side of the picture. The rally in rapeseed prices has put rapeseed crush margins under pressure and soybean processing is looking more attractive. This may take the shine off what is a fundamentally supported market.