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

Continued strong US spring wheat ratings, a benign weather forecast and increased talk of a record US corn crop pushed Chicago futures to a new contract low this week.

However, the market then bounced on firmer EU markets linked to further downgrades in production.

The fall in the size of the EU’s 2016 wheat crop is leading US traders to believe that increased demand could find its way to the US, despite lower prices and strong competition currently from the Black Sea region.

In addition, next week’s WASDE report should project a sharp drop in both global 2016 wheat production and ending stocks. With fund shorts extending their exposure to the recent low, signs of short-covering have supported the bounce.

French MATIF futures continue to firm, with the spread between MATIF and CBOT now at over $40/t, compared with under $10 at the beginning of July. Reports were being floated last week of a large Romanian vessel due to arrive in August – to be tendered against MATIF futures?

 With the French now resigned to the fact that they have a major quality problem, feed imports into North France / Atlantic coast to free-up better quality for domestic millers were being reported.

The focus has now shifted to Germany where rain is seen hampering the wheat harvest, with only 30% done in key areas, and comments from one farmers’ group of yields down 10-20% year-on-year.

In the UK there remains little to add. LIFFE has increased on the week, up £4 on firmer EU markets. Demand stays concentrated in the spot positions as the current illiquidity of supply has supported spot farm levels, with little interest in buying or selling in the deferred positions.

In summary, the likelihood of a sharp drop in next week’s WASDE global wheat production report should portray ‘a bit less of too much global supply’.

Chicago, where the major short remains (fund investors) will ride the shirt tails of lower EU production, staying aware that Russian wheat still remain cheap – Futures, for the time being, look supported technically as shorts square out their positions. But cash wheat has to move, and in great volume, which could change the picture.

Global large supply versus a clear problem in NW Europe are the key drivers for the market. We have to hope that the early reports of good UK quality and acceptable yields continue, and that this will give us opportunities in the weeks ahead.