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

After last week’s sharp upward movement, prices have eased back on more favourable weather outlooks for key producing areas.

The US winter wheat harvest is now over 50% complete, and although wheat crop ratings slipped on the week they still remain ahead or in line with last year. Funds have now switched from their record short position into being long after recent weather scares, leaving the market more vulnerable on the downside if conditions improve.

EU markets have also retraced from recent highs, following US markets lower. The heat that threatened crops across much of mainland Europe is slowly diminishing, although additional rainfall is needed in certain areas.

Crop damage due to the heat seems to have been limited, confirmed by the recent crop estimate by the French agriculture ministry that places the country’s soft wheat crop at 37.9mln t, up 1% year on year. Black Sea values are slightly firmer, although confusion on the export duty (as based on US fob levels) is evident on export quotes.

The UK market has moved lower, pressured by the reverse in global direction and the lack of competitiveness of UK supplies. While the recent rise encouraged some producer selling, domestic buyers were less enthusiastic about following the market higher.

The AHDB Cereals and Oilseeds Planting and Variety Survey released this week shows the GB wheat area for 2015/16 at 1.87mln hectares, down 3% from 2014. Working on average yields, the UK should produce a crop of about 15mln t, down from this season’s 16.6mln t.

In summary, last week prices seemed to be heading into the stratosphere, so what has changed? The weather has improved, US crop ratings are stable and funds are now long. One of the key bullish factors, concern over the US crop, has been removed, leaving weather the main support. As conditions seem to be improving and harvests progress, market fundamentals should start to gain hold of the market, which currently for wheat, and especially US wheat, remain far from bullish on their own.

Summary:

• Global markets weaken on improving weather prospects – US funds now holding long position.
• French agriculture ministry estimates 2015 soft wheat crop at 37.9mln t, up 1% year on year.
• Egypt’s state buyer GASC purchases 180,000t of wheat (two-thirds Russian/one third Ukrainian) for August 11-20 shipment (French wheat $25/t too expensive).
• US National Agricultural Statistics Service (NASS) reports winter wheat crop down 1% on the week (23% v poor/poor, 37% fair, 40% good/excellent) – still ahead of last year (44%, 25%, 31% respectively).
• NASS reports spring wheat crop ratings down 2% on the week (6% v poor/poor, 24% fair, 70% good/excellent) – now in line with last year.
• Crop bureau FranceAgriMer cuts French 2014/15 soft wheat stocks to 2.7mln t (3mln t last month) on increased non-EU exports (estimated at 11.4mln t).
• Ukraine may cut 2015 grain crop estimate for next season if dry weather continues.
• Buenos Aires Grain Exchange reduces Argentine wheat area 15% year on year to 3.75mln hectares.