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

Global markets reaped further support from a surprising USDA report that cut US wheat production by over 2mln t.

The production loss, mainly as a result of a 1.4mln acre reduction in planted area and a drop in yield, resulted in the quarterly stock report coming in 70mln bushels below trade expectations, which produced the rally in futures. However, the implied Q1 usage was a four-year low and implied domestic feeding was lower than anticipated.

US wheat exports are still running 15% lower year-on-year, and the rally yesterday further widened the price gap between the US and other competing origins.

EU futures followed the US higher, although in recent days MATIF had showed signs of weakening on bearish export news.

Firstly it was confirmed that the Russian government had lowered the wheat export tax from 1 October. Then it was reported that Egypt was looking to raise its protein level to a minimum of 12.5%, leaving the prospect of French supplies (which currently have an 11.5% exception, along with the US) being locked out of the market, in a year where heavy French supply is becoming a major issue.

UK futures market edged higher on firmer global markets and a softer currency. The recent release by DEFRA, following its long-awaited stock revision, produced a report which lowered the 2014/15 carry-out by almost 650,000t – crop production was reduced and domestic usage increased for both the 2013/14 and 2014/15 seasons.

Whilst the cut in carry-out stock is not insignificant, the revised figure of 2.43mln t still represents a 56% jump year-on-year, and would be one of the highest, if not the highest, figures on record – leaving the UK with just a bit less of too much supply.

In summary, we have seen a bit of everything this week – weather issues still apply, and the surprise cut in US production and stocks will keep the bulls happy. However, the reduction in the Russian export tax, Egypt’s potential removal of France as a supplier and the general lack of demand keeps the bears asking why coverage should be extended. The USDA releases its US/global update next week, and although a few ‘tweaks’ will be required within the US balance sheet, export projections for both the US and EU look top heavy, reiterating the fact – too much wheat, too little demand!