David Sheppard, managing director at Gleadell’s grain merchants, gives the low down on the world wheat market.

Wheat futures have eased back over the past week, with Chicago trading down $14, MATIF declining €5 and the UK slipping £4.  Markets still have their eyes on the USDA report due to be released next week with potential further cuts in US corn yields expected.

Corn yields are expected to be cut to approximately 150bu/acre from the 153bu reported last month. If realised, then it will confirm the need for price rationing in the US, supporting corn values and increased US wheat usage.

Exports should also be lower, although some of the reduced availability will be switched to the EU/Black Sea regions where production estimates continue to rise.

Canada’s wheat stock was lowered by 8% year-on-year; a smaller than projected fall to 7.2mln/t, as the 2010 crop was slightly larger than previously thought.

The French farm ministry estimated their 2011 soft wheat crop at 33.5mln/t, down 3% from last year.

Egypt’s GASC purchased 300kt of wheat, of which 240k mt was Russian and 60k mt Kazakh, for November 11-20 shipment.

GASC has now purchased just over 2mln/t of wheat since the 1^st July 2011, including 1.8mln/t of Russian wheat. Although the price paid was $4-5/t lower than the last trade when taking currency into account, it was actually $3-4/t higher which reflects a continued firming of Russian interior wheat values.

A HGCA article on the quality of the wheat crop stated that this would make up for lower yields in the UK.  Initial specific weights of 79.8kg/hl would be the biggest since the 1980’s if confirmed in a final report expected in November.  Protein levels have averaged 12.3%, up 0.4% year-on-year. Hagberg numbers have reached a 5-year high of 284 indicating higher starch levels and greater suitability for the milling industry.

In summary, markets remain difficult to call with the current firm US corn market and EU/US wheat looking uncompetitive on current global export markets. The USDA corn yield number next week will drive the market direction in the short-term, but a figure of 150bu is already in the market and confirmation could actually result in a ‘buy the rumour sell the fact’ scenario.