David Sheppard, Gleadell’s Managing Director, comments on the wheat market

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The release of a bearish USDA report at the end of last week kept market sentiment firmly in a negative tone, with increased US/global wheat stocks and bigger US corn stocks. Near ideal weather across the US mid-west continues to support ‘huge’ yield potential for corn/soybeans, although the critical pollination period for corn will be during the next two weeks. US wheat exports remain slow as aggressive offers from other origins, and no apparent weather problems, keep trade away from the US.

EU values have slipped a further €3/t on the week as the wheat harvest in France gets underway. EU wheat prices are now hovering above a 2.5 year low, on forecasts of plentiful supplies and concerns over potential damage to EU crops due to heavy rainfall that has swept across the region since early July.

The accumulation of bearish factors is creating a downward spiral on values, not helped by higher EU and Russian crop estimates. Drier weather is allowing the harvest pace in Russia to accelerate, which in turn is driving prices lower.

UK prices have fallen again this week, down £3/t and pressured by global markets. In addition, UK inflation and unemployment figures this week keep the speculation of an earlier hike in interest rates on the cards, which is deemed negative to UK values and has strengthened Sterling.

The ADHB/HGCA planting survey released last week reported a 22% increase in the estimated GB wheat area to 1.96mln ha, showing area gains for Group 1 and 4 wheat, at the expense of groups 2 and 3. Old crop wheat prices, although still at a hefty premium to new crop, continue to weaken as the upcoming harvest approaches.

This is likely to accelerate as demand wanes (due to cheaper new crop barley), unless we witness a sharp turn to wetter weather leading to major disruption of the new crop wheat harvest.

In summary, global crops over the week have got bigger, along with stocks. Weather remains good and Black Sea/EU crop estimates are rising as we approach their major harvest periods. The French export line-up isn’t large but with the French harvest in full swing, the issue of quality is again raising its head.Whether a quality problem turns out to be bullish or bearish to the MATIF futures wheat contract is open to debate, as the MATIF carries no protein/quality criteria, just a 76kg specific weight against the much tighter export specification.

Short-term the direction is still down, but UK farmers are not selling much at today’s prices and the ‘something will turn up to save this market’ theory is alive and well –and popular.