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

US markets rallied yesterday following the release of USDA’s supply and demand estimates.

US stocks were reduced surprisingly by 1.3mln t as USDA projected a friendlier outlook for US exports.

Global stocks were reduced by 4.7mln t, reflecting mainly lower inventories in the US, Kazakhstan, the Ukraine and India. The drop in Indian stocks was due purely to a 3mln t reduction in crop size. However, USDA failed to increase the country’s import projection from 3.7mln t, when over 5mlm t has already been purchased.

EU markets also rallied on the release, moving to a one-month high as the weaker euro provided support.

Russian wheat prices continue to firm as growers withhold supplies from the market, despite strong export demand and a firmer currency.

EU soft wheat exports were reported at 15.1mln t as of 7 February, down 7% year-on-year.  As exports slow in both the EU and Russia, USDA’s current export projections for both remain optimistic. The Russian forecast was lowered by 0.5mln t, but is still too high.

LIFFE futures are unchanged on the week, although sterling has firmed.  Dynamics remain in the spot position, although some signs of increased merchant selling and consumer short-covering has been apparent.

UK values are still uncompetitive for export, with current farm and currency levels close to import parity. This could increase the viability of feed imports, especially to UK consumers with port-side facilities. UK farm prices are still at multi-year highs and, with an old crop/harvest decline of £20-£25/t depending on location, selling some stock at current levels remains a sensible old-crop strategy.

In summary, the USDA threw its hat into the ring increasing exports, but selling wheat is one thing, shipping it is another. With the increase reported yesterday, the US is predicted to post a 32% rise year-on-year, while shipments to date are only 26% higher. The US may be more competitive, but there are several other exporting regions also looking to increase their market share.