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

The US market is trading $6/t lower on the week, as signs of increased export competition enter the markets.

An aggressive freight rate ensured Argentina gained pole position in the recent Egyptian tender and, despite concerns over harvest quality, it managed to secure 120,000t of the business.

With wheat cargoes priced $10/t cheaper than US/Russia, supplies indicate that export will accelerate into key markets like Egypt and Algeria. With the Australia targeting India and other Asian markets, new year export quotations should remain aggressively priced.

Over the past week concern over the deep freeze in US winter wheat areas has eased, adding to the downturn in sentiment, although the general lack of snow cover still leaves the crop vulnerable.

EU prices are about €1/t higher on the week, despite a firmer currency.  EU soft wheat exports are 11.9mln t, virtually unchanged from a year ago.  

However, given that only a few weeks ago Brussels reported this year’s pace around 1.5mln t ahead of last season, this either reiterates a major slow-down or flaws in the new reporting system, which like the US, includes weekly adjustments of previously reported numbers.

With export supplies starting to dwindle down in the Balkans, and the remaining surplus in Germany, Poland and the Baltic totalling no more than 4mln t, one would question the EU all-wheat export number of 25mln t currently projected by the USDA.

Corn currently dominates Black Sea exports, with reports that adverse weather will limit wheat exports during December. Russian grain exports to July-December are forecast at 20.8mln t, down from 21.2mln t in the same period a year ago, despite the harvest increasing by 15mln t.

This leaves the potential of a major stock build going into the 2017-18 marketing season.

UK prices are up about £3/t on the week, although with limited trading volumes. A slip in currency has provided some support for the higher trade, although like the past weeks, physical trading remains strictly a spot market.  

The UK remains uncompetitive on export markets, and will need either a help from sterling or a major shift in pricing to erode the difference. The balance sheet, after the recent DEFRA downward revision in crop-size, remains tight, and it maybe not be until the final quarter of the season until we can determine exactly how tight that is.

In summary, 2016 is over bar the shouting.  Key US planting and stock numbers are out in January, and the USDA at some stage must readdress their 2016-17 export trade matrix.

The gloves seem off re the fight for exports, with Argentina, Australia and soon Canada looking to increase export activity, but all depending on their final wheat quality.

Even though we are just moving into January, the export window is starting to close as key North African and Asian harvests will only be a matter of months away.

Supplies remain more than adequate, and with recent new crop weather concerns easing, the market fundamentals remain firmly in the bear camp.