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

Overview

All markets have firmed, but there are no major new crop concerns and another bumper crop is looming for the 2017-18 season. The market seems oblivious to any bearish factors as dynamics keep premiums and farm prices at multi-year highs.

However, with Asian and North African domestic harvests only three to four months away, and markets staring at a sizeable price drop between old crop and new crop, it may not be the time to starve the market for the last few pennies – the risk on the down side is much greater!

Market detail

US markets have continued to rally over the week, supported by short-covering that stemmed from reduced 2017 plantings in the US.

There is also some talk that the crop may emerge from dormancy earlier than normal, leaving it potentially vulnerable to dryness, or frost/freeze concerns.

Exports are now running at 64% of the recently amended USDA projection, and need to exceed 630,000t per week for the remaining 16 weeks of the US marketing year to meet the target. Snow, avalanches and heavy rainfall are disrupting deliveries to the Pacific North West, increasing freight costs and delaying shipments.

Australia’s market research organisation, ABARE, this week forecast the country’s wheat crop would reach a record 35mln t. It is likely the record export pace seen in January will continue in an effort to reduce the mounting surplus.

In the EU, MATIF is up €3/t on the week, supported by a better French vessel line-up, a weaker currency and increasing firmness of Russian export prices, as another move in the rouble keeps farmer selling low.

Russian ‘quality’ wheat remains the cheapest in the world and, with European supplies becoming increasingly difficult to source, there is little reason why Russian spot prices should fall dramatically.

LIFFE values are marginally higher, with currency levels virtually unchanged. December’s official export/import figures show a seasonal monthly low and high respectively, at 93,000t and 173,000t. That takes the accumulative Jul-Dec figures to 1.086mln t for exports and 840,000t for imports. UK wheat is closer to import parity, rather than being competitive overseas, and we predict a continued slow-down in export during the second half of the season.

However, imports continue at a brisk pace and, although the balance sheet remains tight, we expect to see the UK end the season as a net importer. This would result in the UK carry-out stock being around a more normal 1.75mln t, despite domestic demand being higher than originally anticipated.