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

The adage ‘rain makes grain’ certainly has rung true, with recent wet weather improving new crop prospects in the US, Russia and the UK, pushing futures to new contract lows.

US farmers have ramped up planting progress, with over 32mln acres of corn planted last week – almost seven times the total 2014 UK wheat area, driving corn futures lower. US spring wheat plantings progressed another 20% and are now reported as 75% complete, well ahead of last season.
Although the US wheat crop ratings improved 1% on the week (43% good/excellent), this was due to an improvement in the condition of the soft red winter crop, with hard red winter wheat unchanged, despite the recent beneficial rains.

Adding to the negative sentiment was the news that the Russian agriculture ministry has prepared a draft decree to end the €35/t export duty on 15 May, proposing a new tax of €1/t to replace it, with a maximum tax rate linked to market conditions.

Despite the continued improvement in the euro, MATIF futures have fallen €4-6/t over the week, pressured by global weakness due to ample grain supplies. News of the likely change in Russia’s export duty drew the expected response, confirmed by Egypt posting a snap tender for last half of June shipment, finally sourcing a total of 120,000t from Russia and Romania.

While the purchase was viewed as cheap it was the volume of Russian wheat offered for the position that was the surprise (seven offers were cheaper than French on a C&F basis).

Old crop offers are likely to become more aggressive, though how this affects EU exports remains to be seen, especially with the vessel line-up remaining thin. The Rouen Senalia silo is still closed for intake, and new crop is only a matter of two months away, all of which could cause serious storage problems.

UK markets have followed the global trend lower, trading down only £1/t on the week but posting seasonal lows in the process. The market has taken some comfort from a softer pound exchange rate against the euro and the US dollar, but export demand is still seen as minimal.

The continued lack of fresh farm supplies has allowed spot delivered premiums to remain firm, despite the lower base price. However, the likelihood still remains of increased supplies being carried into the new season, and given the almost flat ex-farm price through to harvest, long-holders could be caught if old crop and harvest prices buckle under the sheer weight of supply.

In summary, all major exchanges have recently retested, and posted, season lows. However, the market gives the feel of some downside before a floor is set. US exports look overstated, and even though early reports that US HRW yields could be lower than expected, offsetting this is the likely increase in Black Sea supplies, which could have a significant influence on old crop/harvest market dynamics.

News from the US crop tour, a weaker dollar and reports that Canadian stocks were lower than expected have encouraged some short covering, which, given that contract lows were hit, would be expected.

• USDA reports US corn plantings 55% complete but wetter conditions slowed progress this week.
• Russian agriculture ministry proposes ending current export duty from 15 May.   
• Russian grain exports as of April 29th put at 27.7mln t (includes 20mln t wheat, 2.4mln t corn and 4.9mln t barley).
• Ukraine grain exports as of 30 April seen at 29.3mlm t (includes 10mln t wheat, 14.5mln t corn and 4.34mln t barley).
• Egypt’s state buyer GASC purchases 120,000t of Russian/Romanian wheat for 15-25 June shipment – volume of Russian wheat offered.
• USDA reports US winter wheat crop ratings up 1% on the week at 43% good /excellent – improved soft red winter wheat crop rating.
• Crop bureau FranceAgriMer reports French soft wheat crop ratings stable at 91% good/very good condition.
• Wheat rises from five-year low on signs of variable Kansas wheat yields, a weaker US dollar and short covering.
• Statistics Canada reports Canadian all-wheat stocks lower than expected as of 31 March at 16.7mln t, due to increased feed demand.