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

Strong US spring wheat and corn crop ratings, together with a benign weather outlook, have encouraged fund longs to liquidate their positions in recent sessions. However, signs of increased export trade and reports of hotter weather returning to the mid-west pulled the markets higher last night.

With 85% of the US winter wheat harvested, higher-than-expected yields have led analysts to look for higher spring wheat yields. Additional bearish pressure is being exerted from the corn complex, where ideal weather and good crop ratings would support trade views of much higher yields than USDA currently projects.

EU wheat continues to be dominated by the demise of the French crop, now seen at 30-32mln t, some 25% below last season’s record. The quality of the crop continues to deteriorate and news of Black Sea EU wheat being imported to France for tendering on the MATIF contract adds to what is a confused market.

If France has to export a lot of feed wheat rather than milling wheat then MATIF looks overpriced, especially if you end up with Romanian wheat rather than French milling wheat if you own MATIF futures.

Russia’s wheat harvest continues to advance. Good quality and yields are reported, prompting comments that the government may remove, or even scrap, the current export duty and lower intervention prices to increase exports sales.

The UK market remains concentrated on spot demand with end users and merchant shorts topping up requirements as and when they need them. With harvest predictions mostly running at 14-14.5mln t, quality remains the key unknown. Given the poor French crop, any sign of UK quality would enhance export opportunities.

In summary, apart from the EU, global crops are getting bigger. French wheat, due to poor quality, has priced itself out of the export market, leaving Black Sea origin as easily the cheapest wheat in the world. With the potential of increased exports from Russia, on the back of a record post-Soviet crop, other key exporters will have to become very aggressive on price.