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

Global markets have continued to consolidate over the past week, supported by US fund buying. Fund long-holders have been the main driver behind the current counter-seasonal rally as they rotate managed money out of energies and equities, and some have increased their exposure in commodities.

Fund activity, whether initiating or liquidating a position, has skewed price direction relative to market fundamentals in the past, and the current activity is no exception. Although the US corn and soybeans harvests are well over 50% complete, harvest delays and concerns over South American plantings continue to support prices. US wheat prices remains at a heavy premium over other origins, and the recent strength in the US$ is seen as negative to export potential, already described as ‘routine trade’ at best.

Initial crop ratings for the US 2015 winter wheat crop show the crop at 59% good/excellent condition, much in line with last year’s 61%. Winter grain sowings in the Black Sea are nearing completion, with higher acreage reported for both Russia and the Ukraine, although concerns are already being touted about the condition of the Russian wheat crop.

EU wheat exports remain ahead of last season’s record pace, although this is unsustainable. The recent purchase by Egypt picked-off a cheap French offer with others in line with Russian supplies.

There are more than adequate wheat supplies across Europe, in particular in France where storage space at the ports is full, causing delivery issues for the futures market. Black Sea exports are running well ahead of last season, and with a third of the season almost completed, both Russian and Ukrainian wheat exports are at the halfway point of the current USDA projection.

The UK market continues to be demand-driven, with good spot demand supporting farm-gate levels. The recent rally has not encouraged end-users to extend coverage, and farmers are unlikely to chase prices to lower levels.

This leaves the likelihood that the current supply squeeze could continue into the second half of the season. Although the UK is expected to return to its net exporter status, the recent rally in price will have seen the UK lose some of its export competitiveness. With over 3mln t still to be shipped, that increases the potential of the UK 2014/15 carry-out being well above the norm.

In summary, the current market fundamentals have been overshadowed by the recent rally, and do not support the current price movement. Some degree of price retracing in the coming weeks is likely.

• USDA reports initial winter wheat crop ratings as 59% good/excellent, compared with 61% a year earlier.   
• Market researcher SovEcon reports grain exports to end October at 15.15mln t, up 31% year on year (12.3mln t of wheat compared with 7.46mln t).  
• Crop bureau FranceAgriMer puts French winter wheat plantings at 55% complete (51% a year earlier).
• US markets continue to firm on harvest delay concerns / technical fund short covering and a shortage of transport.  
• Australian wheat production seen 5% below official estimates – most analysts at 22-23mln t.
• Ukraine’s grain exports rise 31% year on year to 11.2mln t – includes 6.3mln t wheat, 3.2mln t barley, 1.6mln t corn.
• Ukraine harvests 54.8mln t of grain from 90% of planted area – Ag Ministry projects crop of 64.4mln t (63mln t in 2013).
• British wheat heads to US for first time in over 2 years.
• SovEcon reports Russia’s 2015 wheat harvest ‘may fall 15-20%’ due to poor crop conditions.