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

US wheat futures in Chicago fell to their lowest in almost five years on signs that demand is waning for exports from the US. Wheat sales to overseas buyers since last June are trailing the 2014 pace by 24%, and recent rains have boosted prospects not only in the US but also in Russia and the Ukraine, giving importers more options.

Despite much-needed rains, US wheat crop ratings failed to improve, with disease incidence now taking a higher profile. Corn plantings increased to 19% complete, still ahead of last year’s pace, and with weather looking favourable another strong push is expected this week.

EU prices followed US levels downwards, as the euro posted a marked recovery against the dollar following reports that the Federal Reserve would throw out any potential early rise in US interest rates.

Another solid export week saw 679,000t of soft wheat licences granted, bringing the season-to-date total to 27.1mln t, up from 26.3mln t a year earlier. Reported comments from the Russian agriculture minister over the wheat export duty resulted in his removal, but not the tax! However, with wheat crop estimates growing by the day (now seen at 54-59mln t), helped by favourable weather, officials have commented that the duty could be removed before 30 June.

UK markets have also weakened, with old crop futures trading at contract lows for the season. New crop futures, trading around £120/t for Nov 15, are now just over 16% lower than at the beginning of January, a drop of £22/t.

Old crop market dynamics remain unchanged, with reduced demand being met by a reluctance for growers to sell. Although volumes are picking up, with sterling firming against the US$ (but weakening against the euro), UK supplies remain overpriced for export.

As the weeks pass the concerns overhanging the markets from a few months ago are starting to be ticked off. Both US and Russian new crop prospects are improving, all-wheat plantings in Canada are expected to be higher than initially thought, and the EU is looking at another bumper crop, with the area planted to wheat in France reported at a record high.

El Nino weather concerns are evident, but while this may have a detrimental effect on Australian production, it should provide ideal growing conditions for US and South American crops.

With Russian interior prices now below intervention levels, it is hard to assess at what point this country becomes a real alternative in the world market, given interior logistical issues and currency fluctuations. With the likelihood that the Russian export duty will be removed, current market fundamentals would provide little incentive for the market shorts to start trimming their positions, and even though we are trading around contract lows, there still may be some way to go! Of course the UK election will affect the strength or weakness of sterling.