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

The USDA report released this week was not expected to support a strong price move in either direction, and it didn’t.

With global wheat stocks virtually unchanged, the market took its lead from the corn report, which placed both US and global stocks lower than expected. US export markets are still operating under the bearish stigma of firming futures, driven mainly by new crop weather concerns, a firmer dollar and routine demand.

The recent rise in US futures ($8/t) has widened the spread between US and EU supplies. Given the need for US weekly exports to achieve almost 550,000t per week for the rest of the season, it is likely US wheat stocks will rise in future reports.

EU prices remain underpinned by the declining euro. They rose €2/t as the currency fell to an 11-year low against the dollar this week. However, in US (and world market) terms this equated to a fall of $7/t. Given US markets are trading up $2 for the week, this partly explains the widening differential between US and EU supplies.

Last week saw a slowdown in EU soft wheat exports, but at 21.3mln t to date they remain ahead of last season’s record pace of 20.8mln t. With key importers mostly finished for the season and their new crop domestic harvests fast approaching, the question is whether the EU will manage to export another 9-10mln t. Even if it does, wheat stocks are still projected to increase 50% year-on-year.

UK futures have risen £1.50/t on the week on the domestic market, but are down $1/t and up €6/t due to currency shifts. Spot domestic feed demand is good but growers are reluctant to sell, so delivery premiums have risen.

The pound’s firming against the euro is reducing German and Baltic wheat values, keeping UK milling premiums under pressure. Moreover, UK exports have moved up in price compared with EU supplies, limiting the potential of further trade. Buyers are now £4-8/t below UK domestic levels.

In summary, the USDA report proved to be another reminder that 2015/16 global production prospects will be the fundamental factor capable of changing market perspective. The market will soon leave old crop to run its course.

Whatever the global fundamentals may be, any political or weather-related issue that could affect 2015/16 supply may provide a sharp bounce in futures, especially in US markets if fund shorts are forced to cover.

• Russian wheat exports as of 4 March reached 19mln t – additional exports (against existing sales) to be executed during March.
• Ukraine grain exports reported at 24.7mln t so far this season – includes 9.3mln t wheat, 11.4mln t corn and 3.9mln t of barley.
• Kazakhstan grain exports fall to 4.4mln t so far this season (6mln t last season) –stocks likely to grow.
• China’s chief economist says country should limit grain imports until state reserves are reduced.
• EU commission forecasts EU-28 2015 soft wheat production at 141.5mln t, down from 148.2mln t this season – higher carry-out stocks expected to buffer losses.
• USDA trims US/global corn stocks but wheat stocks virtually unchanged.
• US markets rally on concern over dryness in the plains – firmer dollar expected to limit gains.
• Ukraine’s 2015 winter wheat output predicted to fall to 21-22mln t (24mln t this season).