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

After weeks of stagnation markets continued their bearish run this week. Initial stimulus came from a firmer US $ and cooling tensions in Ukraine, but of more significance was yesterday’s USDA report.

Markets fell to fresh contract lows and the lowest levels in four years on the back of increased US corn yields, the highlight of the report. Yesterday’s revision to 171.7 bushels/acre was the highest yield increase seen from a September report (up 4.3 bushels/acre). It added an additional 9.2mln t to production, which now totals 365.6mln t, bolstering world ending stocks to 189.9mln t.

Global wheat production was increased to a record 720mln t (up 4mln t), with major revisions in Europe (up 4mln t) and Ukraine (up 2mln t). However USDA left Russian wheat production unchanged at 59mt. Harvest updates from the Russian Ag ministry suggest 64% of the crop is complete with 50mlnt so far harvested. The consensus of estimates puts the total at 63mln t. Dry conditions across eastern Australia led the country’s state research bureau ABARES to cut its production estimates this week by 0.354mln t to 24.234mln t (27mln t last year).

Spring wheat conditions in the US added further wheat quality woes as crop ratings fell a further 3% to 60% good to excellent. Harvest progress is behind the five-year average (78%) at 58% due to wet weather delays, which are creating concerns over quality as vomitoxin levels reach nine-year highs.

In Europe crop bureau FranceAgriMer increased French exports within the EU to 8.1mln t (up 18%) and non-EU exports to 8mln t (down 34%). This is a direct reflection of French quality, given that 41% wheat has been downgraded to feed spec (Strategie Grains). News emerged yesterday that delivery silo Senalia in Rouen has had to stop intake until further notice as it has reached capacity due to the challenging export programme, given the “feed” based intake specifications. France once again struggled to compete with suitable wheat for an Algerian tender this week. Algeria bought Baltic grain, thereby increasing the volume of competitive French feed offers hitting the market once again.

Harvest in the UK is on the home straight with 95% of wheat in the barn. Physical activity remains slowish, with consumers happy to watch feed levels fall and growers holding on for a “better” day. LIFFE continues to make new contract lows, trading at its lowest level in four years but, despite all this, demand is sluggish and the UK remains uncompetitive, missing opportunities to export grain in nearby positions.

In summary, yesterday’s USDA has provided fresh stimulus to grain markets with US corn yield coming in above most expectations. The question from here will be how much bigger can this crop get? Markets have fallen a long way and there is little to suggest that the current trend is running out of steam – all of which is happening in the absence of farmer selling.  

• USDA report raises US corn yield to 171.7 bushels/acre.
• USDA predicts record world wheat production at 720mln t.
• Firm US dollar hits 14-month highs.
• FranceAgriMer forecasts French wheat exports within EU at 8.1mln t (up 18%) and non-EU at 8mln t (down 34%). French stocks forecast at 3.9mln t up 66% year on year to a 12-year high.
• MATIF delivery silo Senalia restricts further deliveries.
• ABARES forecasts Australian wheat production down 0.354mln t to 24.234mln t.
• US spring wheat crop conditions fall a further 3% to 60% good to excellent.