Wheat market report: Dryness causing concerns in Western Europe
Friday 21 April 2017
David Sheppard, Gleadell’s managing director, comments on the wheat market
US wheat prices are about $5/t lower on the week, due to more favourable weather patterns.
Continual rains sweeping across the US southern plains have improved crop ratings, providing impetus for fund managers to extend their short position in US wheat markets.
Although beneficial to the drought-affected areas, the rainfall has slowed spring wheat plantings, and is seen delaying early corn and soy plantings in some regions.
Heavy rain in Canada is likely to reduce that country’s all-wheat area to a six-year low, as farmers switch to more profitable canola crops.
In Argentina, a forecast of an 8% jump in area to 5.5mln ha could produce a wheat crop of around 17.5mln t, compared with this season’s 16.3mln t. This could take some Brazilian demand away from the US.
EU prices are slightly lower on both crop years over the week. Old crop is still a technical market as traders try to unwind the large open interest ahead of the higher revised Matif specification for Sept 2017.
Although the US weather has turned more favourable, EU weather has done the opposite. Increasing concerns over dryness in the west, together with recent snow and lower temperatures in the east, have traders on stand-by over new crop prospects, especially with the knowledge that this year’s ending-stocks (if you believe the USDA) equates to only three to four weeks’ usage.
UK prices are slightly lower, despite another hike in sterling following Tuesday’s call by Theresa May’s for a snap election. The move higher makes imports more attractive and further reports of imported feed cargoes being concluded will provide a ceiling for old crop values.
Domestic buyers are still concentrating on the spot market. Buyers are unwilling to indicate a carry, while sellers are looking to sell the deferred positions with a carry. Someone will have to give way soon.
In summary, record global stocks provide a level of security against any new crop issues, and although the US outlook has improved, spring crops are not yet planted. EU weather concerns remain, although some weather reports indicate that next week could provide needed moisture for France and the UK.