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

The key direction for global wheat markets came from last Friday’s USDA report, which reported generally bearish numbers on wheat but, somewhat surprisingly, mildly bullish figures on corn.

That bullishness came primarily from a reduction in the US corn yield from 160.4bu/ac to 158.8bu/ac, which fell someway short of the average trade estimate of 161.2bu/ac and was considered something of a shock. However, while the figures pegged US production at 13.925bn bushels (353.7mln t) compared with the anticipated 14bn bushels, this would still be a record crop.

Aided by a 15% increase in US corn usage for Sep-Nov corn reached a three-week high earlier this week. However, this tailed-off following yesterday and Tuesday’s down-days and at no point did US wheat find support from the short-term bounce in corn values.

US wheat reacted bearishly to the report and has now fallen below key $5.70 support on the front-month Mar ’14 CBOT contract. The main focus was an increase of 2.9mln t in world wheat stocks to 185.4mln t and a 1.1mln t rise in US end-season  stocks to 16.6mln t.

The numbers were of little surprise to the market, which reacted accordingly on Friday by falling $12c. CBOT weakness filtered across to both the LIFFE and MATIF markets; at the close on Friday the May ’14 contracts dropped £3.10 and €3.50 respectively.

There is very little support on offer for European wheat values. French wheat exports continue to face stiff competition from the Black Sea whilst Egypt’s state grain buyer GASC also made its first US wheat purchase of the 2013/14 season on 11 January, confirming US competitiveness against EU wheat.

It is estimated that Russia, Ukraine and Kazakhstan still have about 12mln t left to export, adding to expectation that French wheat exports to Egypt are likely to slow. Crop bureau FranceAgriMer certainly agrees, having raised its 2013-14 French wheat stocks estimate by 300,000t. End of December export numbers show France is only half way through exporting a 12mln t exportable surplus.

LIFFE values have performed comparatively well so far this week. May ’14 closed £1.75 higher and Nov ’14 £1.85 higher on Wednesday compared with the previous Friday (post-USDA). Volume has been relatively thin, which may have given some slightly false support and prices look set to decline in line with other markets.

There are very few global weather concerns that look likely to spook the market – at least short term. A severe cold snap (down to –20ºC) is again forecast across the US Midwest for the final week of January. However, ample snow-cover protection is largely in place with more expected over the coming week.

Conditions across South America are hot but generally favourable, with only slight concerns that dryness could stress the developing Argentine corn crop. A significant market recovery needs a weather problem somewhere in the world – developing crops are seeing few issues.  This of course can change!

Wheat

• Bearish USDA report for wheat on higher US and world stocks.
• French wheat exports revised down due to continued competition from Black Sea and now US.
• USDA report figures supportive for corn, reducing US yield and US and world stocks.
• Severely cold conditions again forecast for US Midwest during final week of January.