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

US markets remain mixed, with corn up $2/t and wheat down $3/t. Some unwinding of wheat/corn and corn/soybeans spreads has been a factor, although recent rejections by China of several cargoes of US corn due to GMO concerns are seen as negative to the market. US wheat export inspections have slowed in recent weeks, and now need to achieve over 475,000t/week for the rest of the season to reach USDA’s export projection.

The EU market has traded higher during the past week, rising €3.50/t. The continued strong current export activity and steady export demand (this week Algeria and Tunisia for Jan/Feb shipment) keeps the market underpinned in the short-term, as available competitive supplies dwindle. Reports that the size of both the Russian and Ukrainian 2013 grain harvest could be upgraded may see these countries return to the wheat export markets in future months.

The UK has followed the EU market higher, rising £1/t on the week, although gains have been limited as the sterling index hit a 14-month high, buoyed by a report that showed consumer and business spending was rising in the UK. Spot logistics remain a problem, with growers starting to shut down for the festive period and transport becoming more difficult to source. Strategie Grains issued its initial UK 2014 wheat crop estimate at 15.4mln t, placing the area at 2mln ha with a yield projection of 7.72t/ha – and at this stage this seems to be a reasonable guesstimate.

In summary, the adage of big crops getting bigger looms large for the remainder of the 2013/14 season. Although recent upgrades in Australia and Canada puts another 6mln t on the wheat balance sheet, pure logistics will mean that not all of this production can access the market that needs it, at the right time!

USDA’s World Agricultural Supply and Demand Estimates (WASDE) report is due out next Tuesday, which should not only confirm these higher estimates but also confirm there is no global shortage of either wheat or coarse grains. Current cash market premiums are justified, and, with the US potentially starting to price in a weather premium, values in the short term look underpinned. However, the long-term scenario looks a different story, especially if crops survive the winter chill without any substantial losses.

Wheat

• Stats Canada projects a record 2013/14 wheat crop at 37.5mln t, up from 33mln t previously and well above trade expectations.
• ABARES, Australia’s department of agriculture research bureau, increases its 2013 domestic wheat crop forecast by 7% to 26.2mln t.
• French corn (grain maize) harvest is now 73% complete; 91% of its planned soft wheat is planted.   
• Russia’s Ag ministry reports the 2013 grain crop could exceed 90mln t.
• Russia’s 2014 grain harvest is put at 86mln t – down on 2013 and based on the effect of unseasonable weather on winter sowings  - but still a big number.
• Ukraine’s 2013/14 grain exports (July-Dec 14) seen at 14.6mln t, up 20% year-on-year (including 6.2mln of wheat/1.9mln t barley/6.3mln t corn).
• China rejects US corn cargoes for GMO issues amid domestic glut.
• Egypt’s state grains buyer GASC purchases 60,000t of Romanian wheat for 20-31 December shipment.
• Argentina’s Ag Ministry forecasts 2013/14 wheat crop at 8.5mln t.