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

The US market took its lead from the bearish USDA report, which showed a gain in global stocks. Increased export availability in the EU, Australia and Canada threatens the potential of the US to take a bigger share of global export demand, unless the US can start to price itself into Egypt/North Africa.

Growth in US export sales this season has been due to increased buying from China and Brazil, although demand from these destinations has waned over the past month or so. With signs of ‘traditional’ buyers (Japan) covering wheat from other origins, coupled with the price gap between wheat and corn within the US capping feed wheat demand, the US balance sheet will struggle to tighten further unless fresh demand is generated.

The EU cash market continues to underpin prices as continued strong export activity and fresh export enquiries add support. Egypt returned this week and purchased French wheat at an $8.50/t premium to Romanian wheat.

This means if Egypt is willing to pay a premium, why do the French need to discount to other origins, especially with French exports being revised higher and stocks revised lower? Maintaining French values would automatically lift Black Sea wheat values, if and when those exports re-appear – unless, as some feel, the tonnage that may emerge out of Russia and the Ukraine is larger than current estimates.

The UK market is now a logistical issue. Farmers in general have shut-up shop until the New Year with merchants now trying to ensure farm supplies and transport to honour fixings. When the trade returns to normal in the New Year wheat demand may be considerably reduced as end-users appear to have a menu of available commodities to purchase – corn, barley and oats to mention a few – all at a hefty discount to wheat.

In summary, the USDA report just confirmed the obvious, there is now even more wheat available, and although corn stocks were lowered they are still more than adequate. With talk that US corn production will be raised in January and official numbers out of China and Brazil potentially placing another 15mln t on the balance sheet, look for corn values to remain under pressure during early 2014. This in turn should limit any major price rally in wheat values.

Wheat

• USDA has raised US/global wheat stocks and lowered US/global corn stocks
• Brazilian analysts forecast 2013/14 corn crop at 77.2-88.5mln t, higher than USDA’s current forecast (70mln t)
• China National Grain and Oils Information Centre (CNGOIC) puts 2013 corn output up 5.9% year-on-year at 217.7mln t. This may curb imports – USDA’s  current forecast is 211mln t
• Kazakhstan grain exports rise to 3.6mln t between July 1 and Dec 1; official forecast for the season remains at 9mln t
• Japan snaps up more Canadian wheat, shifting demand away from US dark northern spring (DNS) wheat
• Egypt’s grain authority GASC purchases 300,000t Romanian/French wheat for shipment 10-20 January
• International Grains Council (IGC) predicts 2014 global wheat harvest will fall despite a 1.4% rise in sowings as yields return to ‘average’ levels
• Australian research organisation ABARES cuts 2012/13 Australian wheat export forecast to 18.6mln t (from 19.2mln t) due to lower carry-in stocks from the 2012/13 season
• French farm ministry sees soft wheat area for 2014 harvest down 1.3% at 4.9mln ha
• French state grains board France AgriMer increases its 2013/14 non-EU export projection to 11.8mln t, lowering ending stocks to 2.4mln t from 2.9mln t