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

Despite a bearish US corn stock report, and prices falling by $6/t on the week, wheat markets have remained resilient, posting gains across all the major futures exchanges. Although US wheat production was raised slightly from previous estimates, supplies of hard red winter and spring wheat were below trade estimates, supporting Kansas futures markets.

With trade talk of extra demand from Brazil, North Africa, the Middle East, and more importantly China, the apparent tightening of good quality supplies across the globe is supporting markets, especially with major sowing delays and potential area loss in the Former Soviet Union.

EU prices have followed the global wheat markets higher, increasing by €6/t on the week, only tempered by a rise in the Euro against the frail US Dollar. The brisk export pace from within the EU continues, and with Ukraine potentially increasing 2013/14 stocks as a buffer against a lower 2014 wheat area, aggressive export offers from the Black Sea region may well diminish, leaving the EU to ‘run with the baton’ over exports, especially into Egypt.

UK prices have also firmed, by £4/t on the week, as general lack of farmer selling means trade shorts are covering domestic requirements. Farmers are occupied with fieldwork and sowing of the 2014 crop, rather than selling the 2013 harvest, which has allowed the spot premium to rise. The HGCA estimated that winter wheat drilling was 30-40% complete by the end of September, with some earlier sown crops emerging, helped by the warm temperature and some rain.

In summary, the markets have firmed over the week, but is it a sustainable rally? UK, EU and global supplies of wheat remain more than adequate, and the US is 12% into what could be the largest corn crop on record. The potential glut of corn from the US, EU and Black Sea – when available – will compete with and shift demand away from wheat in feed diets. Chicago wheat is currently priced at an $80/t premium to corn; an unrealistic figure which is likely to narrow as harvest progresses and puts corn values under pressure. Rallies like the one we are seeing at the moment are well worth consideration.

• The USDA report puts US corn stocks above trade expectations, while wheat stocks were lower. Increased domestic feeding of wheat is replacing high priced corn.
• Rabobank sees the Canadian 2013/14 wheat harvest reaching a record 33.98mln t, indicating a downbeat outlook for prices.
• The IGC has raised its 2013/14 global wheat output forecast by 2mln t, to 693mln t. Stocks at the end of the 2013/14 season were increased to 180mln t.
• US wheat export premiums hold steady on expected demand, amid lower US production and global quality concerns.    
• SovEcon reports that Russian farmers ‘may miss the winter grain sowing target by 3mln hectares’. It forecasts the final winter wheat area at around 14mln hectares.   
• Ukraine’s Agriculture Minister reports heavy rains may cut the 2014 winter grain area by 20% - the government is considering increasing 2013/14 stocks as a buffer.