David Sheppard, Gleadells managing director,comments on the wheat market:
US tour scouts report spring wheat yieldprospects best in 22 years
Russian analyst IKAR raises estimate for 2014 wheat crop to57.5mln t
UkrAgroConsult raises estimate for Ukraines 2014 grain cropto 57.4mln t exports increased to 31.7mln t from 29.7mln t previously
Grain co-op CBH Group reports Western Australianwheat output to beat official forecasts
Egypts statebuyer GASC purchases 175,000t Russian wheat for 11-20 September shipment noFrench offered, US cheapest but out on freight cost
Morocco to cutwheat import tariff to 17.5% from 45% this is seen to favour Black Seaexporters
Agriculture andAgri-Food Canada cuts the countrys 2014 all-wheat forecast to 27.74mln t, downfrom 37.5mln t last year due to reduced acreage
US / EU sanctionson Russian banking system there is some thought this may impend internationaltrading.
RisingBlack Sea crop estimates, good US spring wheat yield potential and near-idealweather for corn development have all combined to keep the pressure on globalgrain prices as US / EU grain exchanges hit multi-year lows.
Thefront month position in Chicago hit a four-year low, trading below $200/t (Dec14),which is seen as a pivotal support level. Some signs of bargain hunting at thelower prices has offered limited support, but US wheat exports remain below thepace of last season.
Currentweather conditions continue to support a hike in wheat / corn yield projectionsin the next USDA report. With the likelihood that old crop corn stocks willalso be increased, this keeps the lid on any potential price rally.
EUmarkets are all about quality, or in this season, the apparent lack of it. As the French harvest progresses, there aremore concerns that a bigger proportion of the crop will be only of feedquality. Traders have been looking around Europe trying to source qualitywheat, but with the rains that have hit French quality moving over into Germanyand Poland, concerns in these countries are also starting to increase.
Withcash premiums for export wheat climbing, MATIF may soon become a feed wheatcontract with the criteria to deliver considerably lower than the specificationneeded for export.
The UKwheat harvest has commenced, with everything to play for. Early signs areencouraging, both on yield and quality.
Given theconcerns in mainland Europe, this may offer the UK some export opportunities.Low spec milling wheat may work into North African homes, and softs could findsome demand into the Med, at the expense of French supplies. However, thisinterest may total about 1mln t, against an exportable surplus put at between2.5-3.0mln t.
Wherethe balance goes remains the conundrum as French feed wheat almost calculates intoUK port-side futures stores and tender on the LIFFE November futures, with amargin. Export feed demand is at low levels with increased French feedsupplies in prime location to cover any Benelux / Med demand.
Insummary the story is the same plenty of wheat around the world, but lots ofquality issues. The Egyptian tender showed US is competitive (only out on thefreight rate) and the fact that Egypt paid $2/t more for Russian wheat, over atime when CBOT had retraced $2/t, reflects the continued tightness of qualitywheat. Only one cargo of Romanian wheat was offered and off the pace, leavingofficials in Cairo crossing everything possible that no disruption to Black Seaexports occurs as a result of the increased US / EU sanctions placed on Russia.
Short-term,the quality of the German wheat crop, followed by the results from Canada,Australia and Argentina will provide long-term market price direction. We shouldnot be surprised if, over the next few months, the differential between feedand quality widens, but this is no guarantee that either will increase inprice!