Gleadell managing director Davis Sheppard explains what a tighter quality wheat supply will mean for the market.

Market fundamentals of a ‘tightening quality wheat supply’ and a potential lower US corn crop has seen the markets supported over the past week, with London NOV11 futures rising approximately £5. 

Continued concerns in France and Germany over the quality of the 2011 wheat crop, where excessive rains will increase the proportion of feed wheat, has supported the market , whereas the UK crop is generally of good quality and we have seen some demand for various grades of wheat to northern Germany .

Russian interior prices have risen sharply over the month, as traders rush to purchase wheat to cover export requirements. This rise in price has raised the question of possible ‘export restrictions’ being imposed later in the year, something currently dismissed by the Agriculture Ministry.

In the US, following the reduction in yield projection for the 2011 corn crop, analysts are already looking for further cuts in the September report with a figure of below 150bu/acre being talked. If so, the US will need to ration demand, and this will primarily be on the export projection as domestic demand is fairly robust.  Lower exports from the US will increase the demand from the EU/Black Sea and this, in turn, should support European feed wheat levels.

Harvest continues to move forward in the UK, with the majority now harvested, although the recent rains will increase the moisture content and the need for drying. Quality is seen holding up well with yields continuing to show improvement on earlier estimates. ADAS are now projecting 7.5-7.7t/ht, just under the 5-year average, which should result in a wheat crop similar to last year’s production of 14.9mln/t.

In summary, it is a ‘quality wheat/US corn story’ with both scenarios adding support to market values. We feel both factors will linger on for some time before they are resolved, the short-term prospects remain supportive.