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

A week of solid gains in the US wheat markets has propelled prices sharply higher.

Chicago wheat prices have firmed $25/t on the week on the back of bullish Canadian and US planting data, declining US spring wheat crop ratings and hot, dry conditions apparently firmly entrenched across the US northern plains.

Funds seem to have now washed-out their bearish stance to US wheat markets and it seems likely that they will enter July long at all three main US exchanges, the first time this will have happened in Chicago for nearly
two years.

Markets will be open to bouts of profit-taking, rather than short-covering. This is reinforced by the knowledge that the one cargo of US wheat offered to Egypt this week was some $55/t above the purchased price.

EU prices have been dragged higher by the US markets, rising €10/t on the week. Harvest has commenced in France with quality reported to be adequate, although variations have been noted in tests before and after recent rains.

UK prices, also buoyed by global advances, have firmed £5/t on the week, although sterling remains supported if not firm.

The rise in the market has resulted in some farmer selling, although the consumption trade remains firmly on the back-burner, unless covering forward sales.

While it is easy to explain why the markets have firmed, it becomes less easy to explain that the long-term value of UK wheat has nothing to do with potential crop losses of higher protein North American supplies.

These losses amount to only a handful of tonnes globally, so the likelihood that 2016-17 global ending stocks will increase by 4-5mln t (higher US/EU on lower domestic use/exports) will negate the drop in production.

USDA is due to release its updated World Agricultural Supply and Demand Estimates report next week, and incorporating the revised US planting data, this will still project global wheat stocks at a record high of around 260mln t.

While further gains cannot be ruled out, UK growers must be aware of global events and not be dazzled by ever-increasing prices. Markets can fall just as fast as they rise, and fundamentals would point to a needed realignment in values and lower prices long term.

It makes sense to take advantage of the current global situation and adopt a little-and-often selling strategy. At near contract highs, this can’t be too far wrong.