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

The lower than expected US corn and wheat stocks released by the USDA last week caused an initial spike in markets as nervous shorts moved to cover some of their exposure.

Delving into the report, it still showed more than adequate inventories of wheat and coarse grains. The drop in US stocks was mainly due to an aggressive outlook by the USDA regarding future US exports, based on strong sales and export commitments. However, with signs of increased export availability from the Black Sea region and Canada (easing logistics), and lower imports seen for Brazil, the US market may have to drift lower to match this optimism.

The EU markets, supported by USDA data, have managed to hold small gains over the week, with the MATIF trading up €1.5/t. Exports continue to impress with export certificates for wheat as of 7 February reported at 18.193mln t, sharply up from 11.678mln t a year ago. The pace of French exports may start to slow in the coming weeks due to increased competition and tighter Egyptian specification.

The UK market in contrast has fallen £3/t over the past week, as a bullish report from the Bank Of England on UK economy/growth resulted in strong gains for sterling against both the US$ and the euro, pushing prices lower. The surprise ‘surge’ in wheat imports during December, and data showing domestic wheat usage starting to decline, increases the likelihood of higher stocks at the end of the season, although some are starting to question whether the crop was there in the first place, given the inclement conditions.

In summary, global stocks were reduced, but there are still ample supplies of wheat and coarse grains. Weather conditions are set to improve in the US mid-west, as warmer weather is seen melting snow cover and providing moisture as the crops emerge from dormancy. Drought in the US southern plains remains a concern for hard red winter wheat.

With the global wheat area set to grow for 2014/15 and harvest only a matter of weeks away (India), the potential of another global ‘barn-busting’ crop is weighing on market values. Crops are not yet made and there remains a lot of weather between now and harvest (not least in the UK), but marketers want a major weather/crop problem to shift current market sentiment.

Wheat

• UK wheat imports pick up in December (163,602t) taking the season-to-date total to 1.343mln t, up from 1.337mln t last season.
• Kazakhstan boots grain exports, with 5.465mln t shipped as of 10 February, up from 4.541mln t year-on-year. Forecast remains at 9-10mln t. 
• Australian state research bureau ABARES increases its estimate of the 2013/14 Australian wheat crop to 27.013mln t.
• The French farm ministry cut its EU export outlook by 200,000t, raising stocks to  2.85mln t (2.9mln t last year).
• The French farm ministry raises its estimate of the 2014 soft wheat area to 4.99mln ha.
• USDA cut US wheat/corn stocks by more than trade expectations and global stocks also trimmed.
• Brazil’s government agency CONAB cuts its estimate of the 2013/14 Brazilian corn crop to 75.47mln t, although this still exceeds the USDA estimate of 70mln t.