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

After hitting new yearly contract lows in pre-Christmas trading the US markets have bounced, moving almost $10/t from the low to their recent highest trading level.

A combination of short-covering, mainly linked to declining US winter crop ratings, and reports of less favourable weather affecting South American soy and maize prospects have supported the recent bounce.

US exports remain on pace with the USDA projection, but still have to achieve 500,000t per week to reach the target. Key US planting and stock numbers are due to be released next week from USDA and these may carry greater significance, giving the apparent down-turn in US winter wheat crop condition.

EU prices have also firmed, following the US market, trading about €2/t higher since our last report.

Over the period between Christmas and the new year, Egypt covered additional February shipment tonnage split between Russia and the Ukraine. Of interest was the fact that no Argentine wheat was offered, whereas at the previous tender it was the cheapest to be sold.

This may be due to the fact that FOB levels have increased $10/t – the freight achieved in the previous tender looked very aggressive.

A truer picture of where the quality market lies will be via the Algeria tender. Although results are still to be published, both US and Argentina look out on price, leaving EU the likely origin.

The French seem a bit more confident that, after months of sieving and shipping the poorer quality, both spec and tonnage could be sourced.  If so, this could well underpin MATIF, as Algerian spec wheat from Germany and the Baltic states is becoming harder to source.

Nothing in the UK really has changed, with short-covering continuing and very little offered both from the trade and growers. Although LIFFE has firmed £3/t since our last report, the split in physical prices between the north (where the demand is) and the south (where it isn’t) shows a marked differential. The UK is far from export competitive, leaving a domestically driven market.

In summary, the colder weather in the US and parts of Eastern Europe/Black Sea, seems to have woken the bulls, especially the Chicago fund shorts. The current lack of snow cover in both regions leaves the dormant crop vulnerable to stress and damage.

It is worth noting that all the major wheat rallies in the last 10 years (excluding poor UK drilling conditions in autumn 2012), have been caused by spring or summer drought or extreme heat and not by winter cold.

One must also remember that in 2017 EU production is set to rebound, and the scale of northern hemisphere carry-over stocks will provide a level of comfort for consumers against potential new crop weather issues.