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

Markets have fallen over the past week. Tensions have eased slightly in the Ukraine and rain is forecast for the southern US plains, bringing some relief to the drought-stricken US HRW wheat crop.

The recent rally in Chicago reflects fund managers covering their short positions. They are now long, leaving the market vulnerable to profit-taking. The USDA next Monday will release its ‘farmer-based’ survey regarding 2014/15 US plantings, which is likely to generate more interest in corn and soybeans than wheat.

While the Russian/Ukrainian situation is far from over, it appears that tensions have eased somewhat, As reported previously, no significant disruption regarding grain exports has resulted from political turmoil in the region.

EU grain exports continue their record pace, although the new harvest in key importing regions are only a matter of a few months away. This may well temper enthusiasm to extend coverage.

This week the UK ministry reported its latest supply and demand figures for the 2013/14 season. It has increased imports and reduced domestic demand, thus increasing the export surplus. We still believe the import figure is understated and that the surplus could be raised in further releases.

In summary, the market has reacted strongly to crop concerns in the US and the turmoil in the Ukraine, but with rain in the forecast and placing politics to one side, the fundamentals are not price supportive.

There are more-than-adequate supplies of old crop coarse grains, and we see  the likelihood of another large global 2014 wheat and corn harvest. However, as we have seen over the past few weeks, we should never underestimate the power of politics and the impact of perceived or real weather events, which will always out-weigh market fundamentals in the short term at least!

Wheat

• China on track to achieve good summer harvest due to rise in winter wheat area and better growth.
• UK ministry raises 2013/14 wheat import estimate, lowers domestic wheat use and increases export surplus by 179,000t.
• The Ukrainian/Russian political situation continues to exert pressure, but no disruption recorded.  
• US hard red winter (HRW) wheat crop conditions still deteriorating.   
• Agricultural agency APK-Inform sees Ukraine’s 2014 grain production falling to 57mln t, down from 63mln t in 2013 (figures exclude Crimean area). 
• Strategie Grains raise 2014 EU soft wheat crop to 137.7mln t and projects 2014/15 exports at 22.4mln t. 
• Analyst SovEcon raises its forecast for Russia’s 2014 grain production to 88mln t and projects exports at 22mln t, down from 24mln t this season.