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

The recent rally witnessed in Chicago wheat may be over for now as worries over US exports intensify. The cancellation by Egypt of 110,000t of 2013/14 sales and concerns that higher prices are reducing demand was enough to encourage fund selling. In addition, reports of snow storms coming into drought-affected southern plains next week added to the negative tone, although recent crop ratings still show the crop deteriorating.

EU markets continue to firm with the nearby position breaking back over €200/t this week. Support has come from a weaker currency and reports that Egypt may well be looking to revise its buying spec back to 13.5% moisture from the current 13%. Exports continue their rapid pace, picking back up last week, with the season-to-date figure reported at 20.2mln t.

The UK market has also edged slightly higher as merchant shorts look to cover requirements against a general lack of farmer selling. With the apparent tightness in the physical market many are looking at the balance sheet and questioning where the wheat is, or whether it was there, in the first place. We should soon know the answer to that question! Given that the DEFRA crop estimate is considered approximately to be correct, and the fact that we are still in February, the tightness in the market is much more likely to be symptomatic of a lack of near-term farm supply rather than any real shortage of wheat. UK milling premiums have eased slightly in the past week as millers have bought cargoes of German and Polish wheat at or below UK values.  This trend will continue if UK values stay where they are.

In summary – nothing has really altered over the past week. The USDA Outlook Forum confirmed another huge US 2014 harvest on the cards and many analysts expect the prospective planting report, due out on 31 March, to show a higher US acreage figure than that reported by USDA Outlook Forum. If confirmed, apart from the now well-published US HRW crop concerns, the weather remains favourable in other key northern hemisphere areas. It therefore remains difficult to put a story together for a major rally in wheat prices.

Wheat

• The USDA Outlook Forum has projected record 2014/15 US corn/soybean crops and puts wheat output higher than 2013/14. 
• Egypt cancels 110,000t of US soft red winter (SRW) sales for 2013/14 –‘for price not political reasons’. 
• The Ukraine Ministry estimates 93% of the winter grain crop is in good/satisfactory condition.  
• Russian grain stocks rise 12% year-on-year on a good harvest – stocks are reported at 25.3mln t as of 1 February.
• High prices are expected to spur a record Brazilian wheat crop in 2014 as farmers expand plantings by 13%. 
• The US Midwest is set for another ‘cold blast’ followed by snowstorms next week – crop ratings in the hard red winter (HRW) area continue to raise concerns.
• The Russian 2014 grain crop may lag official forecast – mainly due to a smaller sown area.