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

US markets have firmed this week, mainly supported by spill-over support from corn and soya markets, which in turn have been boosted by potential crop losses in Argentina due to excess rainfall.

The rise in the US wheat market was predominantly led by colder weather and the threat of crop damage, which now has abated due to recent snowfall. A further factor was the release of US winter sowings that came in well below trade expectations, prompting strong fund short-covering.

However, the rise in US prices has resulted in a slow-down in US sales and shipments. In order to achieve the USDA projection, the US needs to exceed 525,000t per week for the remaining 20 weeks of the marketing season.

EU prices are unchanged on the week and premiums are little changed. Egypt purchased a further 235,000t of wheat for February shipment, sourced mainly from Russia apart from the odd Romanian vessel.

Weekly export shipments continue to slow as reported by Brussels. That is likely to continue, given that Russia is currently the cheapest source of quality wheat, excluding Argentina, (which has quality issues and will concentrate on Mercosur destinations).

Russia will have to step up the pace to achieve its export targets but, with farmers having no cash or storage issues and the currency at an 18-month high, they are not yet throwing in the towel, despite the potential of a large build-up in stocks.

UK prices are up £3/t on the week despite a firmer currency. Sterling has reacted positively to Theresa May’s comment over Brexit, leaving current UK values close to import parity, rather than export competitive.

Spot market dynamics remain, although some signs of forward consumption pricing have entered the market as the UK balance sheet continues to look tight. However, any further rises in the value of sterling will lower any potential for export and increase the likelihood of feed wheat imports. This could significantly alter the UK balance sheet.

In summary, the weather scare relating to cold weather is diminishing and the big picture hasn’t changed with plenty of wheat, routine demand, and no real crop concerns. Wheat on its own, and with no major new crop problem, continues to look for a story upon which a long-term rally can be justified.