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

The US Federal Reserve raised interest rates as expected this week. However, it may be events in Argentina that have a greater influence on the grain markets.

With the export tax now scrapped, Argentine exporters (who are long of about 4mln t of cheap wheat) are looking to offload supplies into markets. This wheat will compete against US and EU supplies in a campaign where exports are already running behind last season, and more importantly behind current export projections. Australian wheat, also soon to hit the market, will be looking to compete into the Asian markets to maintain its market share.

EU wheat prices came under pressure this week as the stronger euro weighed on levels, although the action by the US has partially reversed the upward momentum. Yesterday’s purchase by Tunisia (100,000t) set the markets into a downward spiral, not only by the price paid, but also by the volume offered. This was further evidence of the extent of the oversupply in both the EU and Black Sea region.

In the UK, seasonal logistical issues are starting to kick in. The UK long-term market still looks bearish, although farmer retention and lower sterling may provide limited support. The news today that Defra has revised higher its final 2015/16 wheat crop estimate to 16.44mln t offers few crumbs of comfort to potential long-holders, especially with the fact that the UK still remained a net importer at the end of October.

In summary, it is hard to explain why current cash market weakness will not continue into the second half of the marketing season. Futures and cash markets are like chalk and cheese, and with increased exporter activity now apparent, potential buyers should be greeted with supplies aplenty. All the recent/impending financial issues will have time to settle, but they will probably only add to the negative outlook for global cash wheat. Add in the fact that currently there are no major weather concerns and new crop looks in good shape, maybe too good, and it does little to shake off the bearish sentiment.