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

Global futures markets continue to defy the bearish fundamental supply position, which is supported by ongoing new crop concerns in the US, Black Sea regions and Australia. Chicago and MATIF markets are overpriced against other cash wheat origins, and the USDA is still underestimating the extent of stock building in the US and EU.  Although prices are down $5 on the week, US exports continue to run well behind last season’s pace, despite the weaker US$

EU MATIF levels are down €2, although this is far from the reality of the ‘cash market’. The French again missed out on the latest Egyptian tender, but did the major share of the Algerian trade, albeit at a heavy discount. Strategie Grains has increased its estimate of the EU-28 soft wheat crop by 2mln t, to a record 149.5mln t (mainly due to increases in France and the UK). As the vessel line-up from French ports remains weak, continued pressure will remain on the cash market, which will increasingly become divorced from  MATIF.

UK LIFFE is up £1.50 on the week, with currency unchanged vs the Euro, up against the US dollar. DEFRA last week released its crop estimate, at 16.2mln t, and then asked the trade to ‘take the estimate with caution’ – some recommendation! Initial release of the UK balance sheet points to another build-up of stocks at the end of 2015/16, and with severe doubts over UK domestic demand (or if you use the NFU crop estimate) stocks could increase further.

Technical traders and chartists vs fundamental traders is the current battle, and despite the lemming mentality during the recent spike, one must remember that wheat remains the only commodity where funds still hold a net short, and whilst the fundamentals say otherwise, further fund support can’t be ruled out. However, the cash market has to resolve the over-supply position, and price accordingly in order to secure trade and thus movement. In the end, fundamentals will win out, although the reality, or not, of the current concerns over new crop dryness must be monitored.