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

Markets have re-traced back from recent highs as the outlook for ample supplies weighs on markets. Weaker equity and oil prices have added downward pressure as fund managers banked profit.

Further reports of additional quality controls on Russian wheat exports, along with the Ukrainian government asking the trade to limit January and February shipments, have passed the market by. The general assumption is that the trade has written off Black Sea wheat exports for the remainder of this season. This doesn’t mean the wheat has disappeared; higher end season stocks in Russia now seem a certainty.

European markets rallied on the news from the Black Sea, supported by the euro’s  move to a nine-year low against the US$, before moving lower on global weakness. Although EU exports have slowed in recent weeks, they remain just behind last season's record pace, with France at the forefront supplying Egypt. With the demise of Black Sea exports, EU supplies remain competitive and, with Egypt back in for February shipment wheat, determining how uncompetitive US wheat is against EU supplies will be of key interest.

UK values have followed global markets, pressured by a recovery in sterling against the euro. Official figures place the UK as a net importer up to the end of November; it is likely that the UK will have to wait until official figures for December are released to confirm its return to net exporter status.

This has taken much longer than anticipated, as the perceived increase in exports to North Africa have not materialised. With only a limited export program currently beyond January, and domestic usage, especially into the ethanol sector, under threat from declining oil prices (ethanol futures hit nine-year low this week), the potential of a much higher-than-normal stock carry-out looms large.

In summary, USDA confirmed more-than-adequate global stocks, with more wheat, but slightly less corn. US wheat remains overpriced, despite a $20 drop in US futures since New Year, and with southern hemisphere wheat now available, and sub-Asian continent new crop wheat two months away, it remains hard to portray a bullish scenario. Markets had rallied on Black Sea export restrictions, but these are now factored into the market. A major new crop supply problem may be the only factor to reverse the current trend.

• Ukraine grain exports reported at 20mln t as of 10 Jan – including 8.34mln t of wheat, 3.72mln t of barley and 7.77mln t of corn
• Kazakhstan grain exports fall to 3.62mln t so far this season (as of 10 Jan) – total exports put at 7mln t
• Indian eyes wheat exports as stocks reach three times the government target
• USDA raises US / global wheat stocks and cuts US / global corn stocks – mainly due to unexpected cut in US corn yield
• Agri-consultant APK Inform expects Russian wheat stocks to increase to 10-11mln t (up from 5mln t) due to export curbs
• Russia adds new informal export curbs – more and longer quality checks and delays on final shipping documents  
• Ukrainian government asks trade to limit milling wheat exports in January and February to maximum 200,000t per month
• Buenos Aires Grain Exchange reduces estimate for Argentina’s 2014/15 wheat crop to 11.2mln t due to heavy rains and reduced soil quality
• Brazil’s CONAB reduces 2014/15 wheat crop estimate to 5.9mln t and increases corn estimate to 79.1mln t.