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

US markets have been mixed over the past week. Corn prices were pressured by lower oil prices and rising supplies, while wheat firmed on continuing weather concerns.

Ongoing dryness in the US plains is stressing winter wheat crops, Crop ratings are deteriorating in key producing states, encouraging fund shorts to trim their positions. However, US wheat exports remain routine and with the US dollar’s retraction from multi-year highs coinciding with lower corn prices the current export projection remains a daunting target.

Excessive rains have hampered the very early stages of new crop corn and soyabean plantings, and if weather problems persist in South America that may support higher prices.

EU prices have risen €7/t on the week, mainly due to firmer global markets after the euro/dollar exchange rate rose a cent on the week. Another strong week of EU exports saw 1.6mln t of soft wheat licences granted, bringing the season-to-date figure to 22.9mln t, compared with 21.3mln t at the same time last season. This helped to support the market, as cash premiums remain firm against large vessel line-ups.

Official reports from Ukraine place milling exports at 6.7mln t to the end of February, leaving 300,000t to be shipped in the March-June period – the government has already commented that it will act if total exported exceeds 7mln t.

Russian exports, reported at just over 19mln t to the end of February, have slowed due to export duty being imposed and, with the uncertainty hanging over the duty after 30 June, new crop is almost untradeable. That said, some was reportedly traded at sub $180/t FOB (which equates to £121 sterling) – but on what basis?

The UK market remains a similar picture of good spot demand but a reluctance by farmers to sell, something that is unlikely to change given that the new tax year is a matter of weeks away. This should support spot prices.

Although official data (at last) placed the UK as a net exporter at the end of January (albeit by 6000 tonnes), the recent rise in sterling, and UK prices, almost extinguished the potential of further export trade while lowering the price of imports from the EU. This could leave the UK balance sheet extremely top-heavy, and unless the UK can erode its stocks, significant price pressure in future months could result.

In summary, it’s been a quiet week. The market is now a battle between bearish old-crop fundamentals and new crop weather/production issues, which may or may not exist. Add in Black Sea politics (exports) and you have a potion for a period of increased volatility.

One of the most critical periods for the market begins in the weeks ahead, as farmers, especially in the US, plant spring crops and winter crops emerge from dormancy. Weather forecasts and planting/crop progress reports will gain in importance, as analysts try to obtain yield potential for 2015/16 crops. The increased carry-out stocks this season should buffer any reduction in new crop production estimates, allowing total supplies to remain more than sufficient.

Talking of politics, it was around this time last year that the Ukrainian/Crimean crisis pushed commodity prices higher. Perhaps the market will need another political crisis of this magnitude to provide the basis for a significant price rally, especially if mother nature behaves herself and delivers what could be another big harvest!

• Russian grain exports reported at 25.2mln t so far this season, including 19.2mln t wheat, 1.7mln t corn and 4.0mln t of barley.
• SovEcon forecasts 2014/15 Russian grain exports at 30mln t, including 21mln t of wheat (exports could reach 32-33mln t without restrictions).
• Ukraine grain exports reported at 25.7mln t so far this season, including 9.4mln t wheat, 12.1mln t corn and 3.9mln t of barley.
• Strategie Grains cuts EU soft wheat export outlook to 30mln t citing impact of lower oil prices on importing countries.  
• SovEcon estimates Russia’s 2015/16 grain crop at 85-92mln t (wheat 47-53mln t).
• US markets continue to rally, helped by increased buying of spring wheat by China.
• Weather extremes adding further support – too dry in US plains for winter wheat and too wet in east/mid-west for corn/soyabean plantings.
• Saudi wheat imports set to hit record highs following policy shift to secure water supplies by phasing out wheat production.