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

Markets can't keep coming down every day. Sometimes, when you have witnessed a sharp fall, such as the $70 decline in US wheat in the past seven weeks, the market will bounce. Tuesday turned out to be a macro-buying day, with a weaker US$, firmer crude oil prices and generally firmer agricultural product markets encouraged some short covering.

The resulting price gain made US wheat even less competitive, and while business was going on elsewhere, there were still no signs of increased demand for US wheat. Exports remain well behind the projected pace, and it’s likely the figure will be cut in next week's USDA report, pushing US stocks above 700mln bushels.

The EU market, pressured by a slight recovery in the euro/dollar exchange, again showed how aggressive EU traders are ahead of a potential substantial increase in stock. France, although selling two cheap wheat cargoes to Egypt, for once did not have a monopoly on the trade; most came from Romania. The EU commission expects 2014/15 non-EU exports to be similar to last season's record, given the recent Black Sea restrictions, but even at 30mln t, stocks would still increase by about 6mln t year-on-year.

UK markets continue to follow the European markets up and down. Domestic demand remains hand-to-mouth, with little incentive for the end-user to extend coverage. Farmer selling remains slow, but as previously reported, UK exports are running well behind the pace needed to get anywhere near exporting the 3.5mln t exportable surplus. That increases the likelihood of an above-average stock carry-out, despite several larger feed wheat vessels trading the Asian market.

In summary, the move higher this week may turn out to be a ‘dead-cat bounce' as, longer term, the market fundamentals still portray bearish supply. Confusing reports about Russia increasing both export duty and intervention price will have little effect on global markets as traders assume there will be little or no exports for the rest of the season.

Russian stocks will probably double year-on-year and, assuming export duty will be removed on 1 July, the resulting lower price will be the benchmark for new crop values, well below current EU values.

The recent drop has seen some international demand surface (Saudi Arabia/Egypt) with the US a mere bystander. The US will need to find some increased demand, and fast! There remains a while to go until harvest but we need something to change – weather/currency/politics – to create a sustained rally.

• Canadian all-wheat stocks as of 31 December decreased 13% year-on-year to 24.8mln t, but potential remains to export a further 15mln t in 2014/15
• Western Australian 2014/15 harvest pegged at 13.52mln t, fourth largest in history
• Russia reports 1 Jan grain stocks at 32.6mln t
• China to sell 1.3mln t of wheat from state reserves
• India expects this year’s wheat harvest will be as large as last year’s crop – looking at exports
• Russian agriculture ministry lowers grain export forecast to 28-30mln t – talk of duty being increased along with the intervention price
• EU commission sees 2014/15 EU-28 non-EU soft wheat exports little changed from last season’s record 29.99mln t
• Strategie Grains forecasts Russian 2015/16 wheat production at 53mln t compared with 59mln t in 2014/15   
• US winter wheat crop ratings deteriorate in certain key states month-on-month as dryness takes its toll.