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

The bearish USDA report last Friday set the early tone for this week’s trading activity with markets moving slightly weaker. Despite the release by the Farm Service Agency, which estimated the amount of ‘prevented corn acreage’ (the area that US farmers were unable to sow) at 3.56m acres, the market is down $2/t on the week. Analysts believe there is enough ‘buffer’ in the balance sheet to absorb this scale of loss, especially as many believe the USDA’s current projections on ethanol use and exports are too optimistic.

European markets, like others, have mainly been trading lower/sideways this week, as crop prospects continue to drive up production estimates. Reports of growing concerns over the quality of Russian/Kazakhstan wheat supplies may underpin EU markets, as export demand, especially Egypt, may switch to the EU. At the last tender French values were about $10/t too expensive, but with exporters struggling to source ‘export spec’ Black Sea wheat, interior prices have risen, narrowing the differential.

Within the UK, farmers are either finishing off the last bits of the 2013 harvest or preparing fields and sowing the 2014 crop. The release of the July import figure confirms earlier projections that UK millers had secured ‘quality’ supplies through the harvest period (July-September), to ensure consistency of product following the poor harvest of 2012. The reality of continued imports, and a general ‘much better quality’ UK wheat crop has pressured milling premiums as UK supplies have struggled to find domestic buyers.

In summary, a few more concerns have raised their heads – the quality of Black Sea supplies, the fact that southern hemisphere wheat crops are far from made, potential changes to USDA’s corn figures following the FSA’s ‘prevented acreage report’ and planting delays in the Black Sea region. These should keep markets supported in the short term, but fundamentals remain the same – there are more than adequate supplies of corn and wheat. With prices just hovering above recent market lows, confirmation of these concerns could push prices higher, but higher prices could meet willing sellers, given the bearish fundamentals.

Wheat

• US analysts believe lower acreage will not greatly affect the US balance sheet – increased yield and lower domestic use/exports.
• Russian 2013 wheat harvest as of Sept 16 reported at 44.4mln t (average yield at 2.52t/ha) compared with 36.6mln t (1.86t/ha) at the same time last year.
• UK wheat imports reported at 328,511t in July, the highest figure for that month since at least 1991. Mostly milling wheat from Germany and France – tonnage expected to reduce rapidly as millers switch to UK harvest 2013 supplies.
• USDA lifted estimates of ‘prevented’ corn plantings to 3.56m acres – these lower figures will be adopted in USDA’s October report.  
• Russia and Kazakhstan face more wheat quality concerns which could undermine plans to increase exports.  
• Heavy rains slow winter grain sowing in the Ukraine – 691,000ha sown as of Sept 16 compared with 1.9mln ha at same time last year.