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

The release of a bearish USDA report on Friday (9 May) combined with improved weather prospects was enough to trigger fund liquidation, pulling markets substantially lower on the week.

New crop CBOT (Dec14) corn and wheat futures have fallen 25c and 50c/bushel respectively as, despite lower US winter wheat output and a tighter old crop corn supply, overall global availability is starting to weigh heavily on the market.

The estimate of a circa 700mln t global wheat crop (down 14mln t from 2013) and a 980mln t global corn crop (unchanged from 2013) projects a gain in inventories at the end of 2014/15 of about 1mln t and 13mln t respectively.

EU markets have followed the US lower, with new crop values down €8/t. Favourable weather is seen across much of the EU as recent rains have replenished moisture, easing any concerns over dryness.

Spring sowings in Russia and the Ukraine continue to progress steadily, and exports, although seen slowing in the months ahead, remain on course to meet original targets despite all the talks of major disruptions due to the crisis across the region.

In 2014/15 the EU is set to become the global leader in wheat exports, placing more emphasis on overall quality, especially with the expected lower US output.

The UK market has also fallen, by £13/t and £8/t on old and new crop respectively, despite sterling remaining steady against both the € and the US$. A perceived increase in wheat being offered into the spot market has been matched with limited buying interest, forcing down the delivery premiums. In addition, a pick-up in wheat imports during March appears to substantiate the quest for milling grain, as a lack of domestic supplies forces the milling industry to continue to purchase foreign imports.

In summary, the USDA report reinforced the fact that supplies are not an issue, either for 2013/14 or, as it seems for 2014/15. However, most of these forecasts are based on normal weather/crop development, and this far out neither can be guaranteed.

The recent drop in the market, characterised by an absence of farm selling, reflects current market thoughts over weather and crop prospects. Winter wheat crops are now in full development, and spring crops are currently being planted, leaving markets vulnerable to any market/weather scare. However, if crops deliver, the likelihood is lower prices – so any bounce from current levels could give grower a selling opportunity.

The surge of fund money entering agricultural markets over the past month seems to have ground to a halt. One assumes some portfolios may not be looking too clever and if it were not for the ongoing Ukrainian issues, markets could be under even more pressure.

Wheat

• USDA projects higher global 2014/15 corn and wheat stocks plus smaller wheat crop and record corn crop  

• Ukraine grain exports as of May 13 reported at 30.36mln t (includes 8.6mln t wheat and 19.1mln t of corn)   
• Ukraine spring grain sowings reported at 87% complete (7.2mln ha of intended 8.3mln ha)  
• Russian grain exports reported at 22.9mln t as of end of April – forecast for season is 25.25mln t     
• US winter wheat crop ratings continue to deteriorate - 42% seen in poor/very poor condition, up 4% points on the week   
• US soft red winter (SRW) wheat production forecast 15% down due to reduced acreage/yield projection.

• UK wheat imports increased during March (126,201t) bring year-to-date to 1.68mln t. Maize imports (308,927t) make year-to-date figure of 1.92mln t