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

The USDA produced a bit of a surprise in Friday’s report, reducing both US and wheat global stocks. Its US corn numbers were was much as expected, with a higher yield offset by lower harvested acreage and increased US stocks. The drop in wheat stocks may provide some buying interest in the markets, as many were looking for a build-up in stocks following the bearish US quarterly stocks report.  

EU prices, after the brief rally witnessed recently, have started to trade lower again as the likelihood of ample grain supply weighs on sentiment. The revision of French soft wheat closing stocks to a 10-year high, as a result of higher production, was one stand-out factor as were expectations of lower French exports within the EU and a drop in France’s forecast for animal feed, which added further downward pressure.

Although EU exports are still running in line with last season’s record pace, many believe this is unsustainable, as currently most exports are from Germany, Poland, Romania and the Baltic states, where supplies are limited. Reports that Russia’s export prices are also falling, albeit to still uncompetitive levels, will limit any significant rally in EU values.

UK values, like the EU, have pulled back from the highs witnessed recently. Domestic demand remains mostly a hand-to-mouth affair, with very little buying interest in the new year, unless flour millers/feed compounders cover forward sales.

The release this week by DEFRA estimating the UK wheat crop at 16.62mln tonnes (much in line with the NFU at 16.67mln tonnes), would increase the exportable surplus to circa 3.5mln tonnes. Given that total exports are estimated at about 300,000 tonnes as of end September that would still leave the UK in need of a huge shipping campaign to kick-in during the last nine months of the season, against the bearish back-draft of growing EU and global coarse grain supplies.

In summary, the USDA gave us a bit of a surprise – but it was not a bullish report – and markets had already been trying to erode the recent rally on the still intact bearish fundamentals. The fact global wheat stocks have been reduced by almost 4mln tonnes just means we have a little bit less of too much! Short-term the report may support wheat, but with US corn stocks advancing higher, even with the USDA starting to adopt the expected lower harvested acreage, this may limit potential gains.

• USDA cuts US/global wheat stocks. US to produce record corn crop and yield
• Russia/Ukraine seen boosting winter grain plantings due to favourable weather for 2015/16 despite political crisis
• Russian ag ministry looks for 2014 grain production to reach 110mln tonnes bunker weight (104mln tonnes clean weight)
• Ukraine’s grain exports reported at 9.3mln tonnes as of 8 Oct (includes 5.5mln tonnes wheat/2.99mln tonnes barley)
• Egypt state wheat imports to fall to 4-4.5mln tonnes in next year due to reduced consumption/waste
• FranceAgriMer lifts forecast of 2014/15 wheat stocks to a 10-year high of 4.4mln tonnes, citing lower exports
• NFU reports British wheat yields to reach record highs this year at 8.6t/ha – DEFRA reports crop at 16.6mln tonnes
• Stats Canada forecasts 2014/15 all wheat production at 27.48mln tonnes – lower but in line with expectations
• 20-30% of the Saskatchewan wheat crop will be ‘high quality’ feed verses 80% last year  
• SovEcon flags threat of dryness to Russian grains  
• Russia’s IKAR cuts 2014 wheat crop forecast to 58.5mln t, down from 60mln t previously