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

While the US market continued to rally upon weather concerns and slow plantings during the past week, the slight easing of political tensions in the Ukraine has encouraged some investors to liquidate their long positions.

Reports of Putin stating that Ukrainian elections now seem a good idea, that Russian separatists should abandon their referendum, in addition to the removal of Russian troops from the Ukrainian border have somewhat eased the tensions that were sweeping across the region. However the situation is far from resolved.

EU markets, while watching events closely in the Black Sea region, have eased over the past week pressured by a surging euro against the weak US dollar. Prices on the May MATIF have fallen €6/t as improving crop prospects for 2014 and increasing supplies of grain from this season’s crop have ‘magically’ appeared onto the market. Black Sea exports are still running well ahead of last year and are showing no signs of the expected disruption as a result of the current Ukrainian crisis.

The UK market, like its EU counterparts, has also fallen during the past week, but only by £4/t. Increasing offers of spot wheat, by growers and merchants alike, has resulted in further downward pressure on delivery premiums, as sellers chase what little domestic demand surfaces. Sterling has also benefited from the weaker US dollar, adding pressure to UK farm prices.

In summary, US wheat has a problem (weather) and is priced accordingly. However, current US levels are now priced at a $40-$80/t premium to other origins (depending on grade) and look well overpriced in the eyes of any importer. USDA is due to report tomorrow its initial projections for US and world 2014/15 supply & demand. If it reports what many believe (global wheat and corn crops circa 705+ and 950+mln t) the US may have a bigger problem in the weeks ahead, given current pricing levels.

Wheat

• Ukraine’s grain exports (1 July–5 May) are reported at 29.9mln t, up 42% year on year (includes 8.5mln t wheat and 18.8mln t corn)
• Ukraine’s 2014 spring grain sowing is 79% complete (6.6mln hectares of an intended 8.3mln)  
• US analysts report US crop sowing estimate at ‘1-2mln acres too small’ – where are the missing acres from 2013?  
• Canadian all-wheat stocks as of 31 March were reported at 21.25mln t, up 47% year on year
• Russian spring plantings are reported at 21% complete (6.8mln hectares)   
• Egypt’s state buyer GASC purchases 110,000t of Russian and Ukrainian wheat for June 1-10 shipment  
• US markets slightly firmer on crop ratings/slow planting pace and weather concerns US winter wheat crop ratings deteriorated as record heat scorched wheat in southern plains – 31% reported as in good/excellent condition, 48% reported in poor/very poor condition.