David Sheppard, Gleadell’s Managing Director, comments on the wheat market

It has been said that a week in politics is a long time – well, this has truly translated into the grain markets. The escalation of tensions between Russia and the Ukraine has caused grain markets to react, posting strong gains over the past week.

The US wheat market has firmed $9/t (although the corn market is actually down $1), MATIF is up €8/t and LIFFE futures are up £3/t, as fears of potential supply disruption from one of the world’s largest exporting regions intensifies. The recent rally in global prices has resulted in US / French supplies becoming expensive against Black Sea/Romanian wheat, as witnessed in the latest Egyptian tender, at a time when, across much of the EU, farmers are finding more supplies of old crop wheat than might have been anticipated.

The EU, when not caught up in current Russian/Ukrainian politics, continues to tick-over tonnage, with soft wheat exports now reported at 24.3mln t, compared with 16.3mln t a year earlier. The weather remains favourable for new crop prospects, with the German farm co-operatives recently raising their estimate of the 2014 wheat crop to 24.7mln t.

Although UK LIFFE futures have firmed, delivery premiums continue to be squeezed. UK wheat imports fell in February, to just 82,009t, the lowest single monthly volume for 20 months. With wheat imports likely to be well down on last season’s, many are still questioning the actual 2013 UK crop size of 11.9mln t, and we are not ruling out the potential of a resurgence in wheat imports in the last quarter of the campaign.

In summary, falling US crop ratings and the historic slow pace of US spring wheat/corn plantings (although similar to last season) would be enough to support the market. However, currently it is all about politics. Unless we see evidence of a port blockage or sanctions are imposed, Black Sea grain will continue to be exported, with on paper another 3-4mln t of wheat to be shipped.

In the longer run, if the situation in the Ukraine worsens, there may be issues regarding Ukrainian farmers’ ability to put the required level of inputs on their crop, but this is conjecture, which is what is driving our markets for the moment. In short, the return to markets after Easter could see another price spike if the Ukraine situation worsens, or a pullback in prices if tensions ease. Second guessing the next event or price move is a punter’s game and number 3 in the 2.20 at Newmarket might offer better value.

Wheat

• Ukraine 2013/14 grain exports are reported at 28.6mln t, including 8mln t of wheat. Total export projection is still seen at 33mln t  
• Russia’s 2013/14 grain exports reported at 21.5mln t, up 47% year on year  – including 15.9mln t of wheat
• Egypt’s state buyer GASC purchases 230,000t (Russia/Ukrainian and Romanian) for May 1-10 shipment – the cheapest offer was $20 lower than French wheat
• Brazil is seen producing a record wheat crop in 2014 at this early stage. If realised and if Argentine production rebounds, US exports would be set to decline sharply
• Global wheat prices jump as tensions escalate in the Ukraine – stoking fears of potential supply disruptions  
• US winter wheat crop ratings decline – 34% reported as in good/excellent condition, down 1% on the week. 

• Ukraine grain stocks as of  Apr 1 reported at 12.3mln t, up 14% year on year