The US market is about $1/t weaker on the week. USDA is expected to lower US exports and raise stocks in this week’s report, due to the ongoing slowness of exports. That, combined with large global supplies, continues to pressure markets. However, some concerns over dry conditions in the US Southern Plains, and the likelihood that US winter wheat plantings will show another yearly decline, is seen as offering some support, especially with the hefty short position still held by the fund managers.
European prices are marginally higher on the week, mainly due to a weaker euro. Exports remain slow, down 20% y/y as of Jan 2nd. With Egypt continuing to secure cheap offers of Russian wheat and Argentinian wheat priced $20/tonne below French into Algeria, time is gradually running out for exports to dramatically increase. France’s farm office yesterday lowered its forecast for non-EU soft wheat exports for the third consecutive month, to 9.3mln t, but with only 2.76mln t shipped as of end November, where they think over 1mln t per month is going is anyone’s guess!
The UK market has finally got up to speed after the festive break, although dynamics seem little changed. Despite thoughts that the market may take a breather with the prolonged shutdown of one of the UK’s ethanol plants, end user and merchant shorts still show good demand for spot wheat, albeit indicating their reluctance to ‘chase the market higher’ or pay any market carry for deferred months. The balance sheet would still point to adequate supplies for the season, which would argue that current ex-farm prices remain attractive levels for growers to extend their selling activity.
In summary, the USDA will report, again, burdensome supplies of wheat, although some degree of adjustment on various countries’ export numbers is required. The extreme cold snap in the US has abated, although new crop dryness concerns are growing, and there is the potential of risk of winter kill, due to the crop’s vulnerability in parts of the EU and Black Sea if the weather turned more seasonal. This leaves the market open to short-covering, especially if the US planting report generates further surprises.