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

Wheat

• The latest USDA report is expected to trim US / global stocks – although it is still predicted to project adequate tonnages

• EU 2013 wheat crop projections continue to expand on favourable weather – French soft wheat crop seen at 35.9mln t

• Ukraine lifts wheat harvest estimates to 20-21mln t – exports to increase to 9mln t

• Warmer weather seen returning to US mid-west at key producing stage for corn / soybean. Pre-USDA report short-covering and Chinese buying is supporting levels

• China continues to purchase new crop corn / wheat at values below domestic levels. Total import requirement is expected to increase

• Russian wheat crop outlook is cut on reports of drought losses and lower-than-expected yields

Talk of hotter weather returning to the US plains, continued Chinese buying and reports that the Russian grain crop may be trimmed was enough to encourage a bout of short covering, especially with corn prices moving to a level not witnessed since 2010. China continues to source wheat to replenish production shortfalls, with local analysts reporting that total wheat imports may reach 5-10mln t.

EU prices have followed the US higher, but grain prospects continue to improve as favourable weather seems well established across much of northern Europe. Early reports of harvested crops in the south show yields well above those of last season.

The news of a potential drop in Russian grain production is supporting EU prices. However, a wheat exportable surplus slightly higher than this season could prove more difficult to market, given the greater global competition expected during the 2013/14 season.

UK new crop prices have increased by £5/t since the start of the month. Old crop values have also risen, supported by higher new crop values and signs of renewed buying interest for July and early August positions.

Forward buying activity for new crop remains slow, with most end-users either waiting for early indications of new-crop quality, or the current market rally to be reversed.

In summary, the market has turned firmer, although long-term bearish fundamentals still prevail. The USDA has updated its US and global supply and demand estimates; it will take some digesting but interest will focus on the corn yield estimate and China and Russia. However, currently the market is trading weather and any possible impact in the US.