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

Already feeling the backdraft from the Chinese currency devaluation, commodities were dealt another hammer-blow as the USDA produced a report that took the market by surprise.

Whilst US wheat production was trimmed slightly, it was the scale of increase in US corn and soy yields, production and ending stocks that produced the sell-off after the report was released.

US crop ratings are no better than they were at the beginning of July, so does this merit the increase? The trade thought not, USDA did and that is what apparently counts in the long run! Wheat markets continue to follow rather than lead. Export inspections are running 23% behind last season’s pace, so wheat remains heavily over-priced with little fundamental support.

The EU market, while showing some support recently on concerns relating to the diminishing EU corn crop, followed Chicago lower. News that the second MATIF futures store (Rouen) has suspended intake did little to relieve harvest pressure.

Increased production of 5mln t for the Black Sea region will keep EU values honest and increase the importance of getting the Russian tax situation resolved as soon as possible. The 22% slip in the ruble since mid-May is hurting exports, but supporting interior farm levels.

The UK is still operating under the spot market regime. Prices have fallen as reports of large yields place additional supplies into a market already awash with abundant old crop supplies and limited demand.

As the harvest moves north and west, premiums in these areas have diminished, with the market in the south and east now trading at a larger-than normal discount to secure movement.

In summary, the last week has been a bull’s worst nightmare, with concerns over China and reduced demand followed by a bearish USDA report. The corn/soy numbers released virtually eliminated any risks to the supply side, which was seen as supporting the recent spike, especially within the corn market.

For wheat, nothing much has changed – US fundamentals look bleak, and whilst corn held a glimmer of light, that has now been extinguished. Unless there is a total southern hemisphere disaster, wheat markets will struggle to hold onto any rallies.

Summary

• USDA increases US corn/soy yields, production and stocks more than expected, but surprisingly cuts US wheat production.  
• French silo operator Senalia stops accepting wheat – crop seen approaching record 39mln t and export demand thin.
• Russian traders/farm lobby will ask government to cut, or scrap, floating export tax on wheat, as a weak ruble is hurting exporters.
• Kazakhstan’s agriculture ministry has raised its 2015/16 grain export forecast to 8mln t, from 6.4mln t in 2014/15.
• A surprise Chinese currency devaluation stoked fears of an economic slowdown and lower commodity import demand.
• US agri-statistics agency NASS reports corn crop ratings unchanged on the week (9% v poor/poor, 21% fair and 70% good/excellent) – down from last year’s (7%, 20% and 73% respectively).
• NASS reports spring wheat crop ratings down on the week (8% v poor/poor, 23% fair and 69% good/excellent) – down from last year’s (5%, 25% and 70% respectively).
• EU corn crop estimates continue to fall on dryness concerns in France and Eastern Europe.