US wheat prices are about $5 lower on the week, due to more favourable weather patterns. Continued 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 the 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, an increase from this season’s 16.3mln t, and would likely 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 shown the opposite. Growing concerns over dryness in the west, and 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 3-4 weeks’ usage.
UK prices are slightly lower despite another hike in sterling following Theresa May’s apparent U-turn in calling for a snap election. The move higher makes imports more attractive, and further reports of imported feed cargoes being concluded will provide a ceiling price on old crop values.
Domestic buyers are still condensed to the spot market, with buyers unwilling to indicate a carry going forward and with sellers looking to sell the deferred positions with a carry. Someone will have to give soon one way or the other!
In summary, there is little fresh to report. Record global stocks provide a level of security against any new crop issues, and although the US outlook has improved, spring crops are not even planted yet! EU weather concerns remain, although some weather reports indicate that next week could provide needed moisture for France and the UK. A potential repeat of last year’s French crop debacle would mean a significant shift in the EU’s balance sheet, at a time when all other key exporters are likely to have increased inventories to sell. In short, it’s about weather.