David Sheppard, Gleadell’s managing director, comments on the wheat market

The latest USDA report, out yesterday, had little impact on the wheat market. However, for the first time, USDA reported the non-Chinese global wheat stock situation.

This is an important figure, as Chinese wheat is almost never exported. USDA’s estimate of that non-Chinese global stock for 2018/19 showed a reduction of 18mln t or 12.5%.

If you also take into account USDA’s Indian stock estimate of 10 mln t, which also won’t be exported, the real ‘available’ global wheat stock figure for 2018/19 is 115 mln t versus the often-reported global total figure of more than 264 mln t.  

Old-crop UK wheat remains well supported, with some now questioning the official supply and demand numbers.

If one uses the recently released DEFRA data, based on farm area aid payments, the 2017 crop was around 350,000mt smaller than previously reported. If true, this certainly matters at this late stage of the season.

It is certainly true that imports of Danish and French feed wheat have picked up recently, with more cargoes expected over coming weeks. However, further supplies are not readily available at sensible prices.

New crop markets are now focused on the weather with some regions – Australia, Black Sea and parts of the USA – certainly being closely watched.

Currently we expect the UK to be a net importer again in 2018/19, so whilst international price moves do have an impact, it will be currency parities and the price at which the UK can import feed wheat into deficit areas in the last four months of the season that will provide an effective ceiling for our market.

Jonathan Lane, Gleadell’s trading director, comments on the OSR market

USDA released its May supply and demand report yesterday, which the trade deemed to be mildly supportive to the market, with global ending stocks coming in 4.5mln t below forecast. Otherwise, production figures for the US were in line with trade expectations and had been largely priced in. 

The weekly US crop rating report illustrated again just how quickly North American farmers can plant when conditions allow. US soybean plantings are now 15% complete, above the five-year average and, with the weather forecast settling down, the expectation is for another good drilling week.

Having suffered from the worst drought in 35 years, Argentine farmers are now struggling to complete harvesting the balance of their weather-affected crop, due to excessive rains. Despite USDA’s figures, locals are still suggesting that the crop could well fall below 35mln t, a near 20mln t year on year reduction in production.

The 25% trade tariff that China intends to impose on imported US soybeans, is expected to begin in early July. If no alternative resolution is found, the imposition of this import duty could result in Chinese commercial buyers cancelling existing US purchases.

This could well impact negatively on US farmers, who currently export 60% of soybean production to China.

The world has no more soybeans than before the Chinese/US trade discussions. What these tariffs will do is change trade flows, and it remain unclear exactly how this will play out.

In Australia, hot and dry weather has shut the window for canola planting, and after last season’s dry year, the newly planted crop will need timely rains. Thus far, the forecast is not ideal, and we wouldn’t be surprised to see a sharp drop in canola production this year.

Northern Europe is also seeing some issues. Reports from Germany suggest crops dropping flowers, plants with blind sights and aborted pods. In the UK, the crop suffered with wet, cold weather at the start of the flowering period, and we have heard similar issues from co-ops in France.

The old-crop UK market is over. As we mentioned last week, the market has now given back virtually all of the old crop premium over new crop and, with transhipped cargoes of Australian seed now coming into the UK, we can expect the old crop market to head to a discount to new crop values!

The new-crop market has been aware of the European surplus for some time, and one could argue that the bearish old crop supply and demand is now largely priced into the market.

If crops globally deliver on their potential, a return to lower prices could be anticipated, but with lots of chat of potential problems, the market is finding support for the time being.