Competitive prices into Algeria and Saudi, the lowest winter wheat area for over a century, declining crop ratings and funds extending their Chicago short position – a recipe for higher US prices? No, Chicago is down $5/t on the week as it seems no-one wants to own it! A shift in the weather models bringing additional rains into the winter wheat areas that should lessen drought concerns seems to have carried a wave of bearish sentiment along with it, although temperatures are still expected to remain above average.
EU markets have followed suit, with Matif old crop down €4/t and new crop (Dec17) taking out the previous contract low of €171 set back last September. Hopes of additional exports had surfaced from the recent high level of Egyptian purchasing and the current tit-for-tat dispute between Russia and Turkey. However, the Egyptian hope quickly faded when it was reported that the state buyer (GASC) had rejected 10 cargoes, which equates to roughly a month’s supply, and goes someway to explain the recent hike in purchase activity. Regarding Turkey, earlier reports of banning Russian wheat were dismissed, although the wording was that ‘they may choose not to purchase Russian wheat’, adding the US, Germany, and Romania to their list of non-tariff free origins for imports.
The UK old crop market still shows little incentive to move lower, down only £1 on the week and on the back of a firmer currency, although new crop (Nov17 more influenced by the macros) is down just over £3/t. Spot delivered premiums are if anything edging slightly higher, as signs of increased buying activity is met by proud sellers who seem at present reluctant to start discounting offers.
In summary, US wheat is competitive, although it remains unlikely there will be enough pick-up in export trade to dramatically alter the balance sheet. With the recent buying sprees by Algeria and Saudi, these will all but take care of their old crop demand, leaving only Turkey and maybe Egypt, if they decide the recent drop in the market is worth pursuing. UK market dynamics haven’t changed, with little incentive by sellers to discount offers on the back of weakness in the futures market, although the drop in value into new crop may encourage selling later in the season, as “not selling” old crop supplies is a non-option given the discount to new crop levels.