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

Despite continued underlying weather support, markets over the week have seen long liquidation, pulling Chicago levels down $8/t on the week.

The USDA report, on face value, was deemed bearish, as an increase in US spring wheat production (above trade estimates) partially offset lower winter wheat production.

US exports were lowered, but only by 25mln bushels, and given current price parities with other origins, still look very optimistic.

Global production was trimmed slightly, although the increase in carry-in stocks leaves 2017/18 closing stocks little changed.

EU values, pressured by the euro’s move to a year high against the US dollar, have followed the US market lower, trading down €5/t on the week.

Initial support surfaced earlier in the week as heavy rains through the weekend hit the Paris area, raising concerns over French wheat quality.

The French farm ministry raised its projection of wheat ending stocks to 2.8mln t this week, citing an increase in supply offsetting increased intra-EU exports.

Harvests continue to advance in the Black Sea region, although progress, especially in Russia, is well behind last year’s pace. That is causing a few headaches for shorts trying to cover early shipments.

Early yield projections are in line with last season, although reports of lower proteins are a concern.

UK prices are down £1/t on the week. Another heavy month of wheat imports (May 2017), and the virtual shut-down of UK exports over the final quarter of the marketing season, will ensure that carry-over stocks are larger than originally projected. At over 2mln t, these will provide supply security during July and the early harvest period.

Sterling has been volatile, moving firmer on Thursday following a drop earlier in the week, triggered by less bullish talk from the Bank of England over interest rates and a few choice words from Boris Johnson over the UK’s divorce bill with the EU.

In summary, the reduced US crop has not transposed into lower global stocks. The UK market has gained support from firm global markets linked to production concerns, mainly in North America.

While these concerns are supportive to the future markets, there is no correlation between US quality wheat and UK feed wheat. Growers therefore should take advantage of current market forces for at least a part of their marketing strategy for both 2017/18 and 2018/19.
    
Although the EU has been told to ‘go whistle’, it will have a large say over potential trade deals with the UK, which will have a substantial impact on the crop sown this autumn.