David Sheppard, Gleadell’s managing director, comments on the wheat market

Following last week’s US wheat purchase cancellation, Egypt came back for another go and surprised the market by buying 290,000t, its largest single US acquisition for some time.

The trade was for higher quality hard red winter (HRW) wheat rather than the usual soft red winter (SRW). While that may provide some support to the US quality market, it will also send ripples of concern to long-holders on the Chicago exchange, which is already suffering from US soft wheat’s lack of competitiveness. The purchase, using the US $100mln credit line, clearly demonstrates that Egypt needed some quality wheat to blend with EU/Black Sea supplies.

EU prices moved higher towards the end of last week on an improved export outlook. North African buying lifted the MATIF and the large German wheat export programme continues; the trade estimates about 1.8m tonnes will be shipped in February and March.

Although EU wheat exports are ahead of last season's record pace, stocks are expected to rise year-on-year, limiting any major price rallies. Rising bread prices may force additional export controls within Russia and now the Ukraine, where a major decline in the country's currency is forcing up domestic wheat prices.

UK prices fell sharply over the week due to further gains in sterling against the euro and US dollar. This means the UK has become less competitive for further exports, both within the EU and beyond. In addition, signs of declining domestic demand (mainly from the ethanol sector) and the general hand-to-mouth buying strategy of feed and flour producers has reduced delivery and quality premiums.  

Looking ahead, global supplies remain abundant, and demand is starting to wane. The recent purchases by North Africa have all but finished this region as an old-crop importer and any further Black Sea export restrictions will have little impact on the market.

With the USDA Outlook Forum projecting more than adequate US supplies through 2015/16, it will take a major weather or supply issue to provide the stimulus for a sustained price rally. Politics can never be ruled out as a game-changer and, with concerns still apparent over new crop conditions in parts of Russia and the Ukraine, the export policies both countries adopt after 30 June will either make or break the new crop market.

• From what we know at present, the likelihood remains for further declines in farm prices, for both old and new crop.
• USDA Outlook Forum projects increased 2015/16 US wheat stocks, despite a fall in planted acreage.
• Russia’s Grain Union reports 1mln t of wheat sales remains on the books and that exporters are expected to fulfil these contracts.
• Ukraine grain exports reported at 24mln t so far this season – including 9.1mln t wheat, 10.8mln t maize and 3.9mln t barley.
• Poor quality and ample supply hits Kazakhstan’s grain exports – reported down 25% year on year.
• Morocco on course to harvest record cereal crop of 10mln t – fewer imports will result.
• Egypt’s state buyer GASC purchases 290,000t of US HRW wheat using $100mln credit line.
• Russian officials report no need for maize, rye or barley export duties, for now.
• Market analyst IKAR puts Russian 2015 grain production at 89-95mln t – winter kill is reported above normal levels.