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

US markets have fallen from their recent peak as the pace of harvest (corn and soybeans) increases with improving weather. This has created the potential for record supplies to flood the market. In addition, US wheat exports remain no more than routine, and with a firmer US$, this is deemed negative to US exports and future price.

EU remains in a supply squeeze, despite a softening in values. Egypt’s state buyer GASC purchased another 180,000t of French wheat in its latest tender, but the thing of most interest was the discount. It appears the French seem willing to reduce the price every time GASC tenders.

EU exports continue to run ahead of last year’s record pace, helped by the continued weakness of the Russian rouble (down 35% since the summer) and falling oil prices. This has encouraged Russian farmers to retain grain as a hedge against an ailing economy, thus limiting the availability for export.

Winter crop sowings are progressing well across the EU, but concerns still exists regarding the continued dryness and potential winter-kill threat over the Russian 2015 wheat crop.

The UK market, pressured by falling global markets, continues to defy gravity as good spot demand and limited farmer selling helps to keep farm-gate prices buoyant. With the normal seasonal shut-down only a matter of weeks away, farmers are unlikely to chase the market lower. This means spot premiums should be supported until the New Year, when both growers and end-users alike need to come back to the market.

In summary, the short-term supply squeeze remains. Global prices have reacted to improving weather forecasts allowing rapid harvests and record supplies. However, funds are still short in US markets and any supply concerns will encourage further buying spikes.

The next USDA report is due out next Monday. We believe it will not be a major game-changer, but will just confirm near-record production and more-than-adequate stocks. The long-term bearish fundamentals are still intact, and although this will be confirmed by the USDA, it is unlikely to shake the market from its current sentiment.

• USDA reports initial winter wheat crop ratings as 59% good/excellent, unchanged on the week (this compares with 63% a year earlier).   
• Russian Ag Ministry reports grain harvest 96% complete – production at 108mln t (bunker weight) – plus winter grain sowings all but complete.   
• Ukraine’s grain exports to end of October put at 11.53mln t – includes 6.37mln t wheat / 3.21mln t barley / 1.81mln t corn.
• Egypt’s state buyer GASC purchases 240,000 t French and 55,000 t Ukrainian wheat over last week for 1-20 December shipment.  
• IGC raises 2014/15 world wheat, corn production.  
• US markets continue to gain support on technical fund short covering.  
• EU increases its soft wheat export forecast to non-EU countries to 28mlt t, up from 25mlt t last month.
• Market analyst IKAR estimates Russia’s 2015/16 wheat production at 46.5mlt t, down 12mlt t year-on-year, due to weather issues.