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

This week, pure and simple, is all about US weather. Any sign of rain, the market came down, any sign of dryness, the market went up.

The first release this year of US winter wheat crop ratings showed the crop in better condition than expected. However, as the crop emerges from dormancy, the current weather divide expands the gap between Chicago (soft) and Kansas (hard) wheat futures. The better-than expected-ratings reflect the relatively strong condition of the soft red winter crop grown in the Midwest, where rainfall has been plentiful, against declining conditions in the major hard red winter areas, the US central and southern plains, which are plagued by continued dry conditions.

EU prices, down €1.50 on the week, are actually $6/t lower as the euro trades weaker against the US dollar, tracking the fall in Chicago. A quieter export week in Brussels saw only 189,000t of soft wheat export licences granted, putting the cumulative seasonal figure just under 25.7mln t, compared with 23.9mln t a year earlier. This ‘slowdown’ may start to reflect reduced demand from key importers as their domestic harvest nears.

The Black Sea market remains almost untradeable, with the uncertainty about the export tax after June hanging over the market. News wires reported that a meeting next week was going to resolve the debate, but officials also reported that the decision would not be made until May, despite increased requests by Russian trade bodies to remove the tax early.

UK market continues in the same vein of spot interest and lack of producer selling. As commented in previous reports, the squeeze is just pushing the problem back to a later date, as the projected surplus grows on declining demand. A report that the potential of a hung parliament after May’s election might weaken sterling and support farm prices is plausible, assuming that, by then, you can find a buyer of around 1.0-1.5mln tonnes of UK feed wheat!

In summary, weather continues to control the markets. Improved conditions in Russia, along with declining domestic prices and a firming currency, would support the removal of the duty, but when will the government move and in what direction?

The major concern is still in the HRW areas of the US, and that is where the major market short is, the fund investor. Changes in weather forecasts will provide the catalyst for price movements over the next six to eight weeks as US crops are planted and develop.

 The USDA monthly update for once, reported numbers most of the trade were expecting and is seen having little impact upon the market. However, the decision over the Russian export tax, one way or the other, would have a major impact!

• Wheat prices decline as rain provides some relief to US crops.
• USDA reports US winter wheat crop ratings better than expected – buoyed by improving conditions in soft red winter wheat areas.
• Russian rains will improve soil moisture in the Volga region.
• French farm ministry forecasts soft wheat plantings for 2015/16 at 5.18mln ha, up 3.4% year-on-year – the highest for 23 years.
• UN lifts world wheat harvest hopes, citing improved EU prospects.  
Russia seeks views on extension of wheat export duty.
• USDA trims US/global wheat stocks slightly, raises US/global corn stocks as expected.
• India purchases 70-80,000t of Australian wheat for April/May shipment supporting reports of damage to its wheat crop.