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

The trade was waiting for the USDA report yesterday and received a few surprises on its release.

US spring and durum wheat yields were trimmed and soyabean yields were revised higher, when most were looking for a slight reduction.

But corn numbers were well above trade expectations, despite the USDA trimming yield, production and ending stocks.

The yield, at 169.5 bushels/acre, was just 1.2 bushels below the July projection, but some 3.5 bushels/acre above the average trade guess.

Global corn stocks stayed static when they were expected to reduce, and wheat production was increased, mainly due to a massive 8.5mln t upgrade in Black Sea production. This pushed global ending stocks up 4mln t.

All in all this was a bearish report, and market prices followed suit.

EU prices, already reeling from a week of consecutive daily contract lows, took another hit on the USDA data on Friday morning.

Before yesterday’s report, Strategie Grains released its monthly update, revising EU soft wheat production for 2017-18 to 141mln t, slightly up from last month.

This followed the recent upgrade in France’s soft wheat estimate to 36.8mln t by that country’s farm office. It reported the crop as showing very good protein content with other quality specifications appearing adequate to meet market needs, despite the impact of recent rains.

However, if the USDA projection of Black Sea wheat production is correct, the fact the French have quality is the only one of their worries as they try and regain export markets lost last season.

UK futures were unchanged on the week, only to trade lower as other global markets weakened on the release of the USDA report.

Market dynamics in the UK are all about harvest progress, with the recent rains ensuring little activity in the north and west of the country, which continues to support a weather premium in the short-term.

However, with the prospect of improved weather, harvesting in these regions may pick up, increasing the liquidity of supply and eroding any spot premium.

In summary, the USDA threw a real curve-ball at the market, which completely changed the aspect on US and global soya bean and corn.

For wheat, the bigger picture hasn’t really changed. Supplies of higher quality milling wheat seem to be diminishing, especially with the downward revision in Canada, and rains continuing to disrupt the German, Polish and Baltic harvest, raising concerns over final quality.

The global wheat stockpile just got bigger, with the potential for more feed and less quality, and with the Black Sea appearing to buck the trend on 2017-18 production, they will increasingly become the driver for EU, and therefore, UK prices.