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

Markets have bounced off recent lows, supported by reports of dryness in Australia, lower crop estimates in Argentina and concerns over dry conditions relating to new crop plantings in Southern Russia.

With Ukrainian and Russian winter plantings put at only 25% and 55% complete respectively, the concerns (perceived or real) were deemed enough to trigger short covering by funds, as charts hit technical support levels.

However, with US export inspections currently running 18% lower year on year (on a higher year-on-year export projection) and the US dollar firmer, the recent bounce has not improved the outlook for US supplies.

EU futures hit a one-month high, supported by the firmer global market and a weaker euro. Although the French managed a share of the recent Egyptian tender, the sale of 60,000t was heavily discounted with the next cheapest offer some $8-10/t higher.

As the MATIF silos remain closed for intake, and export demand remains slow (EU soft wheat export licenses are down 25% year on year), the sale represents the need to shift stocks with the general French line-up about $5/t more expensive than Black Sea values on a C&F basis. There is still no clarification on the Russian export tax situation.

UK futures have also moved higher, although the firmness of sterling still limits export opportunities. As futures rose, cash markets continued to trade at a heavy discount as the trade looked to offload supplies into limited demand.

Official figures for July showed the UK as a net importer, to the tune of 60,000t, and this trend may well continue at least for the first quarter of the season. The bigger crop leaves the UK facing a daunting task to shift any considerable volume of the projected surplus, unless we witness a major realignment in cash levels and the farmers’ continued willingness to sell.

In summary, one must determine whether the current weather-related issues are justified. It is dry (Black Sea region) but it was also dry last year when the trade tried to write off the crop and we ended with a Russian crop of 60mln plus! Plantings are behind but there is still time to plant, and one must also remember that, although weather conditions at time of planting are important, recently it has been spring and summer weather conditions that have dictated final crop output. Also fundamentally, nothing has changed. There is still too much wheat chasing too little demand, and with both US and EU exports continuing at their current pace, how long will it be before USDA is forced to adjust its overstated projections?