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

The US market has fallen $7/t over the week, pressured by a firmer US dollar and a gloomy export outlook. Uncertainty over the Eurozone (UK exit) has resulted in both sterling and the euro weakening as currency traders adopt the US dollar as a safer option.

However, the export outlook for US wheat remains dire, with exports running 13% down year-on-year, and values remaining uncompetitive against other origins, which are seen benefiting from weaker currencies

EU values, down €6 on the week to new contract lows, remain under pressure despite the weaker euro. Declining export opportunities and cheaper origins (Black Sea / Argentina) should see EU soft wheat stocks increase to well over 20mln t. With continued uncertainty over Egypt, the French may well start targeting UK feed destinations, especially with the prospects of a further 40mln t wheat crop looming on the horizon, full export silos, and no current new-crop weather concerns.

‘Should we stay or should we go’ seems to be the major question on everybody’s mind. The pending referendum on the UK’s membership of the EU seems to be setting up a clash between members of the government, sending ripples of uncertainty into the financial sector.

The risk of a Brexit has seen sterling lose 3% in value as senior members of the government join the exit camp. As the campaign intensifies over the coming four months, we expect increased volatility in both sterling and the euro, especially with the Bank of England not ruling out further rate cuts if the market justifies them.

While a weaker pound is more supportive to farm gate prices (new crop), the reality of a fundamental oversupply (old crop) is starting to weigh heavy. LIFFE has fallen back to re-test contract lows, and pressure from European and global markets (weak export outlook) could drive futures values down further.

Although good shipping demand has supported spot delivery premiums, the export book for the fourth quarter (Apr-Jun) remains thin. As export competition is set to increase, quotations will need to stay competitive meaning the likelihood of lower ex-farm values, even with the ‘silver lining’ of a weaker currency.