David Sheppard, managing director at Gleadell, gives insight into last week’s developments in the wheat markets.

Russian grain exports continue to flood out of the country with estimates that between 3.2–3.5mln/t will be exported during September, following 3.2mln/t in August and 2.5mln/t in July. Officials have estimated total grain exports for 2011/12 at over 20mln/t including 16-17mln/t of wheat.

Dry weather is seen as a major threat to Argentine wheat crops unless rains come to the rescue.  Farmers have planted 4.6mln ha of wheat in the 2011/12 season, the second smallest area dedicated in the last 10 years.

French soft wheat exports in July were reported at 1.25mln/t, down 7% from last year.  Exports outside of the EU reached 717,451 tonnes down 6%. French wheat exports so far this season have been curbed by large volumes shipped by Russia which lifted their grain export ban in July.

French farm office AgriMer raised its estimate of the French 2011 soft wheat crop to 33.4mln/t and reported that crop quality was satisfactory. Wheat demand in animal feed is expected to be higher due to competitive prices against maize, but exports would fall sharply due to a lower crop and increased competition.

Strategie Grains have lowered their 2011/12 forecast for soft wheat production in the EU to 129mln/t down from 129.2mln/t.  Heavy rain has affected both the quality and quantity of crops in Germany, Poland, Scandinavia and the Baltic States resulting in a 3.1mln/t drop in the estimate for milling wheat production to 83.5mln/t.

Ag Canada raised its forecast for Canadian 2011/12 all-wheat production to 24.08mln/t, up from 23mln/t previously. They also raised their export projections to 16.8mln/t, leaving wheat stocks at 6.1mln/t against 7.19mln/t in 2010/11.

Egypt’s GASC purchased another 240thd/t of Russian wheat for November shipment with a further 180thd/t Dec 1-10 since the start of the year (July 1st). GASC has purchased 2.46mln/t of wheat including 2.16mln/t of Russian/180thd/t of Romanian and 120thd/t of Kazakh. Black Sea wheat, especially Russian wheat, continues to heavily undercut offers from the U.S. and EU.

England’s 2011 wheat crop is estimated at around 13.64mln/t, down 1.5% from the 5-year average reports the NFU.  Preliminary results from its survey said yields were below average while the cropping area was 3% higher at 1.82mln/ ha.

The USDA’s expected cut in corn yields has done little to stem the tide in the current bearish market sentiment. The drop to 148.1bu/acre according to the numbers has already started the price rationing within the US with lower domestic use and export projections. The rise in Global wheat production and ending stocks, albeit with increased usage, will stop any major price rallies unless we see problems with Southern Hemisphere crop prospects or perceived 2012 plantings.

A stronger US$ is also adding pressure within the US and, with Black Sea wheat offered at considerable discounts to EU supplies, the market dynamics will need to change to alter current market scenario.