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

US markets continued their downward move as bearish USDA planting/quarterly stock reports pushed markets lower after their release. Although corn acreage was trimmed, strong current crop ratings, which supported record yield projections and a higher quarterly stock figure, outweighed that slight drop in acreage.

In addition, the revised soy acreage, now at a record 84.8mln acres (up 8mln acres on last year) set the tone, pulling grains down in its wake. Even though new crop US wheat (CBOT Dec 14) has now fallen $1.50/bushel (nearly $60/t) since its peak in May, US wheat is still carrying a heavy premium on the international markets.

EU markets, while keeping one eye on the US markets, has been less volatile, only trading down €1/t on the week. However the EU is not without its own problems as a large crop looms on the horizon.

The latest Egypt tender, again secured by Romania (if they can make the spec with talk of weather concerns) and Russia, could set the tone for the nearby harvest period. French supplies were $15/t too expensive and, with talk of increased Black Sea farmer selling as harvest progresses, one can expect prices to drift lower, piling more pressure upon the EU as the export books remain thin in the face of a 140mln t+ crop.

The UK market has moved lower by about £3/t, pressured by another rise in sterling, now trading at €1.256 and $1.715. With the move to contract lows, signs of increased consumer activity in the market has surfaced, and has been met by only  limited producer selling.

New crop prospects remain positive, and with reports of new crop barley being cut, old crop wheat markets have plummeted (by over £10/t in the week), but still remain at a decent premium over new crop – but for how long?

In summary, it was the soybean and corn reports from the USDA that set the tone – wheat just followed. Ever since the US prospective planting report was issued back in March, traders have been asking where the missing acres were. The USDA found them in Monday’s report, adding another 5.5mln acres to the planted numbers (mainly soybean/wheat/sorghum/oats and cotton) and this came as a major shock to the system producing the enviable ‘lemming’ selling mentality.

Wheat harvests have commenced in the Black Sea region, and will soon start in the EU, with farmers well behind on sales – this is expected to intensify in the next few weeks, increasing the potential for a major bottle-neck in supplies and lower prices as exporters chase what markets appear. However, when the gates shut some sense may return to markets, as most traders remain aware of the current discounts in the deferred positions against US SRW/HRW and German wheat, unless we see another major shift lower in US values.

It feels like one of the biggest stand offs we can remember – UK farmers (and those in the EU ) watching prices fall and refusing to sell versus consumers who keep buying a bit as the market drops.

• USDA trims US corn acreage but raises all-wheat/soybeans – report deemed as bearish
• USDA reports quarterly corn stocks higher than predicted – lower usage potentially raising US stocks
• Russia’s 2014 grain harvest reported at 5mln t complete as of 2 July with yields up 8% at 3.78t/ha. Progress delayed by rain
• Egypt’s state buyer GASC purchases 240,000t (180,000t Romanian/60,000t Russian) for August 11-20 shipment – French prices $15/t too high
• China seen facing massive corn stocks (40-45% of global stocks) curbing need for imports  
• Kansas wheat yield seen varying between 35-75 bushels/acre – wet weather likely to hurt specific weights
• Canadian farmers expected to plant less wheat in 2014 at 24.087mln acres (down from 24.77mln in March and 26.015mln in 2013)
• Analyst estimates Ukraine’s 2014/15 grain exports to fall 20% to 25-26mln t due to higher production costs    
• Frost in Southern Brazil poses risk to wheat and corn crops.