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

Rising Black Sea crop estimates, good US spring wheat yield potential and near-ideal weather for corn development have all combined to keep the pressure on global grain prices as US / EU grain exchanges hit multi-year lows.

The front month position in Chicago hit a four-year low, trading below $200/t (Dec14), which is seen as a pivotal support level. Some signs of bargain hunting at the lower prices has offered limited support, but US wheat exports remain below the pace of last season.

Current weather conditions continue to support a hike in wheat / corn yield projections in the next USDA report. With the likelihood that old crop corn stocks will also be increased, this keeps the lid on any potential price rally.

EU markets are all about quality, or in this season, the apparent lack of it.  As the French harvest progresses, there are more concerns that a bigger proportion of the crop will be only of ‘feed’ quality. Traders have been looking around Europe trying to source quality wheat, but with the rains that have hit French quality moving over into Germany and Poland, concerns in these countries are also starting to increase.

With cash premiums for export wheat climbing, MATIF may soon become a ‘feed’ wheat contract with the criteria to deliver considerably lower than the specification needed for export.

The UK wheat harvest has commenced, with everything to play for. Early signs are encouraging, both on yield and quality.

Given the concerns in mainland Europe, this may offer the UK some export opportunities. Low spec milling wheat may work into North African homes, and softs could find some demand into the Med, at the expense of French supplies. However, this interest may total about 1mln t, against an exportable surplus put at between 2.5-3.0mln t.

Where the balance goes remains the conundrum as French feed wheat almost calculates into UK port-side futures stores and tender on the LIFFE November futures, with a margin. Export feed demand is at low levels with increased French ‘feed’ supplies in prime location to cover any Benelux / Med demand.

In summary the story is the same – plenty of wheat around the world, but lots of quality issues. The Egyptian tender showed US is competitive (only out on the freight rate) and the fact that Egypt paid $2/t more for Russian wheat, over a time when CBOT had retraced $2/t, reflects the continued tightness of quality wheat. Only one cargo of Romanian wheat was offered and off the pace, leaving officials in Cairo crossing everything possible that no disruption to Black Sea exports occurs as a result of the increased US / EU sanctions placed on Russia.

Short-term, the quality of the German wheat crop, followed by the results from Canada, Australia and Argentina will provide long-term market price direction. We should not be surprised if, over the next few months, the differential between feed and quality widens, but this is no guarantee that either will increase in price!

• US tour scouts report spring wheat yield prospects best in 22 years   
• Russian analyst IKAR raises estimate for 2014 wheat crop to 57.5mln t 
• UkrAgroConsult raises estimate for Ukraine’s 2014 grain crop to 57.4mln t – exports increased to 31.7mln t from 29.7mln t previously Grain co-op CBH Group reports Western Australian wheat output to beat official forecasts
• Egypt’s state buyer GASC purchases 175,000t Russian wheat for 11-20 September shipment – no French offered, US cheapest but out on freight cost
• Morocco to cut wheat import tariff to 17.5% from 45% – this is seen to favour Black Sea exporters
• Agriculture and Agri-Food Canada cuts the country’s 2014 all-wheat forecast to 27.74mln t, down from 37.5mln t last year due to reduced acreage  
• US / EU sanctions on Russian banking system – there is some thought this may impend international trading.