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

US markets have traded higher over the past week, supported by weather concerns in the US and southern parts of Russia and a weaker dollar.

A return to drier weather in the US plains drew some short covering, spurred by reports that showed drought expansion in key growing states. US wheat prices are starting to add risk premiums, although actual prices have since retreated with rain now forecast for the plains. To confound the problem, wetter weather may cause corn prices to rise as it slows US plantings.
 
EU prices are slightly weaker on the week internally, but up $6/t due to currency movements. Although soft wheat exports slowed last week they still achieved an impressive 780,000t, bringing the year-to-date figure to 23.7mln t, compared with 21.9mln t a year ago.

EU crop agency MARS reported that Ukrainian and southern Russian winter grains may have suffered cold-weather damage, although Russian officials say winter-kill losses are lower than previously reported. In addition, the Ukrainian government has said it may raise its 1.2mln t cap on milling wheat shipments through June after favourable growing conditions for this year’s winter crop, and that the decision on export limits would be revisited in late April/early May.
 
The UK market remains one of good spot demand but limited farmer selling.  LIFFE prices, up £1/t on the week, are actually $5/t higher due to the retreating dollar. Export interest in the deferred positions is non-existent. In addition, animal feed demand is expected to decline into the summer. Unless the UK can tap into export demand, and that will mean a significant drop in farm levels (assuming currency parity remains unchanged), the likelihood of a huge increase in stocks draws closer.
 
In summary, it remains old crop fundamentals against new crop weather and politics. As this week ends, weather is showing signs of improvement, but politics (exports) remains uncertain. If more favourable weather conditions support a bearish move on Black Sea exports, market dynamics could be a completely different ball game. Russian wheat could be about €35/t cheaper from 1 July, and that could mean a tricky marketing situation for the harvest period. Until then markets will continue to trade weather and wait for the US planting report, due out next Tuesday, which may provide a few surprises.