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

The events in the Ukraine have dominated grain markets this week. Uncertainty over grain shipments and possible trade flow disruption or sanctions has encouraged fund shorts to cover their exposure.

Although we hear that the main exports facilities are still operational, trade sentiment and the weight of buying interest propelled markets higher on Monday, before an easing in tension calmed the market somewhat. Obviously all market participants are watching events in the region with interest.

Crop conditions in US hard wheat regions are of concern with limited snow cover leaving the crop vulnerable to the freezing weather conditions.

The EU market quickly followed the US one higher as traders viewed the potential disruption of Black Sea supplies as a bullish factor for EU exports. Tonnage shipped so far this season is reported at 20.2mln t as of end February, compared with 13.1mln t a year earlier.

The UK market has also firmed, with futures currently trading £4/t higher on the week for both old and new crop. Good spot buying interest has allowed cash premiums to remain strong.

This week saw the release of the December planting survey, estimating a 19% increase in wheat plantings in England / Wales for the 2014 harvest. This is in line with an earlier HGCA release. Working on average yields, this would produce a UK wheat crop of 15.0-15.2mln t and place the UK as a net exporter.

In summary, it is not easy to see past the current Ukrainian turmoil, and the markets reacted as expected – upwards as risk was taken off the table. However, Chicago funds have now covered their short position, old crop importer demand is waning and new crop prospects remain generally very good (apart from the US HRW areas).

New USDA figures are out on Monday, with what could be a non-event, but the stocks and planting reports released on the 31^st March will carry more weight. Politics will remain up front and centre-stage for the next few weeks leaving markets vulnerable to volatility. However, for some time now we have always viewed non-fundamental rallies as selling opportunities and we are smack bang in the middle of one right now.

Wheat

• The International Grains Council forecasts lower global wheat yields / production for 2014/15 but ending stocks to remain unchanged due to larger carry-in stocks.   
• Egypt’s state buyer GASC purchases 295,000t (235,000t Russian / 60,000t Romanian) for 15-31 March shipment.
• Ukraine expects less than average winter grain area to be lost this year, with best conditions seen in higher producing areas.  
• Australian 2014/15 wheat crop seen at 24.8mln t, down from 27mln t in 2013/14 – however, higher stocks would increase 2014/15 exports to 19.1mln t. 
• UK 2014 crop wheat area rebounds in England / Wales – reported at 1.815mln hectares, up 19% on the final 2013 acreage.   
• The Ukrainian political situation may have an impact on Black Sea region cereals, though export facilities remain open 
• The US hard red winter wheat area is still under stress from continued freezing temperatures / lack of moisture.   
• Egypt’s new supplies minister is to reconsider French wheat imports (moisture content) – however, no early fix.