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

With the Crimea situation removed from front-page headlines, and reports of improved weather conditions entering the southern US plains, fund longs have entered a bout of profit taking following the recent strong two-month rally.

Over the past week CBOT has shed $10/t (28 cents/bushel) as the main current bullish factors lose their intensity. The USDA stocks/planting report gave little market direction, although the stocks numbers would support a cut in next week’s USDA corn supply and demand, but could trigger a rise in US wheat stocks.

The EU market in general has followed the US lower, albeit only €4/t, supported by the strong cash market. Exports for the season now exceed the previous annual record (of five years ago) at over 24mln t, with three months of the campaign still to go! With lower new crop cash levels being offered (improving weather outlook) fresh old crop wheat supplies began to surface – just at the time when demand is declining ahead of new crop. It’s a potential recipe for carnage!

The UK market has followed the other global market lower, with May 14 trading £5.50 down over the week. However, decent spot demand from merchant shorts (and the odd end-user) and the continued reluctance of farmers to sell fresh supplies has seen delivered premiums continue to firm.

The release last week of UK import/export data showing the vast increase in maize imports again raises the question over the wheat balance sheet, especially with the apparent tightness overshadowing cash grain. Prospects for 2014/15 remain favourable with crops looking in good condition, although ADAS did report the while crops escaped inundation damage from the UK’s unusually wet winter, the mild conditions which accompanied the heavy rains have encouraged high risk of disease.

In summary, this week’s price action is either a fundamental retracement or the market ‘taking a breather’ before trying to march higher. As the weeks progress, and we get closer to domestic harvests, import demand will slowly decline ahead of new crop. If the balance sheets are correct, and the apparent volumes of wheat materialise onto the market, the end of the 2014-15 season could be difficult, especially if the current favourable weather continues.

Wheat Summary

• USDA quarterly stocks/planting reports provide little surprise – figures within trade estimates and would confirm large 2014 US crop potential.
• International Grains Council (IGC) forecasts fall in global 2014/15 wheat output of just over 1% at 700mln t. Global stocks seen as stable, corn production set to increase.
• Ukraine’s weather centre estimates winter grain losses at 1-2%, a historically low figure following mild winter conditions.
• Ukraine’s grain exports increase during March to 2.98mln t – season-to-date figure put at 27.5mln t, up 40% on the year (includes 7.8mln t of wheat and 17.3mln t of corn).
• Russian grain exports reported as of 26 Mar at 20.3mln t, up 44% on the year (includes 15mln t of wheat and 3mln t of corn).
• Egypt aims to cut wheat imports by 1-1.5mln t next fiscal year.
• Brazilian government has reportedly increased minimum wheat price by 5% to encourage farmers to produce more wheat.
• Cold and wetter weather seen delaying US Midwest sowings.
• USDA likely to trim US corn stocks due to increased domestic and export demand in next week’s report.