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

US wheat has continued to test contract lows over the past week as generally bearish sentiment continues to weigh on the market.

Initial support of $5.70/t was broken earlier last week and although the market has since traded back above that level it has also traded down to new lows of $5.61.

Temporary support was seen following the release of US weekly export sales, with wheat in-line with expectations and corn well above. However, both wheat and corn have lacked any significant momentum; at $5.64 front-month CBOT wheat and corn are now only fractionally weaker than at this stage last week.

This degree of consolidation has filtered across to the MATIF, which has traded mainly sideways over the past three days. On Monday it had traded to a three-month low on May ’14 and to contract lows on Nov’14, but has since held as the weight of sellers has – for now – disappeared.

Positive EU weekly soft wheat export licenses of 810,000t at the end of last week, the third highest weekly figure for the 13/14 season, took the EU’s season total to 15.9mln t compared with 10.4mln t at the same point last season. This did little to support the market immediately but is likely to have added to the recent sideways move.

Despite the positive overall European numbers, stiff export competition from the Black Sea has continued to hamper French prospects. Egypt’s state grain buyer GASC bought 295,000t of wheat at the end of last week and although this included 120,000t of French origin it also featured wheat from Ukraine, Russia and the US.

France now needs to shift more than 1mln t each month until the end of June to reach its expected export pace for the season. French wheat was included in Tuesday’s 500,000t of Algerian business for April/May shipment, but there is still a long way to go. Strategie Grains clearly agrees, having recently revised 200,000t of Egyptian wheat demand from France to Romania.

German export numbers were handed a boost late last week on news that it is shipping 250,000t to Iran in January. With a further 190,000t planned for Saudi Arabia recent numbers look very promising, contributing to the expectation that overall EU wheat exports will reach 24 mln t this term, 10% higher than the previous record.

Globally, weather worries remain at a minimum. The cold snap set to strike the US Midwest will have to be watched closely again, although only 15% of the country’s soft red winter crop is said to be under threat. Rainfall across key areas of Argentina and Brazil have aided corn crops and the Black Sea and Western Europe have no noteworthy problems.

In the UK, LIFFE has also traded sideways over the past two days, although over the past week May ’14 is down £3.10/t and Nov ’14 down £2.75. Much of this move can be put down to the stronger £ over the past 10 days. This week’s improved UK unemployment figures helped the £/€ reach 1.2250, while the IMF’s upgrade of UK economic growth also offered sterling significant support.

On paper there is still plenty of grain around, and in this situation rallies are selling opportunities.

Milling wheat

UK milling wheat is still supported pricewise in the nearby positions by a lack of farm sales. Further forward millers are reluctant buyers as ‘on paper’ supplies of UK milling wheat are plentiful and, with Sterling remaining firm against the euro, imported supplies are beginning to feature into some mills.

In this scenario selling into the January/February market, for at least a percentage of remaining stocks, would appear to make sense.

Wheat

• Positive US weekly export sales for wheat and corn.
• France still facing export competition from the Black Sea and US.
• MATIF trades to three-month lows at the beginning of the week.
• No global weather concerns in the short to medium term.