As the US returned from its Thanksgiving holiday, traders sold both the wheat and corn markets, pushing prices to contract lows ahead of first notice day. Although demand for US wheat remains sluggish, with current export shipments down 6% y/y (against the perceived 5% reduction projected by the USDA), pricing of better quality is seen as ‘competitive’ against other origins and may feature in the upcoming Saudi tender. USDA reported wheat acreage is likely to decline further in their baseline projections, putting the area to the 2018-19 marketing year at 45mln t, down from 46mln acres this season. Reduced area and declining winter wheat crop ratings should provide support long-term, although the forecast is seen bringing moisture into the main growing states, which in turn may reduce current dryness concerns.
EU prices, like the US, traded down to fresh contract lows this week, before bouncing higher. In its latest tender, Egypt again purchased only Russian wheat at this week’s tender, with the Romanian offers seen between $5-10/t too expensive. Although it is envisaged that France will get the majority share of the Algerian business, it is thought at least three Argentinian cargoes were included. The Saudi tender will test how much German/Baltic quality wheat is left, with US HRW seen as a potential alternative.
UK futures on the week had been down £4/t, as news of a Brexit divorce bill settlement sent sterling sharply higher. However, and even though sterling remains firm, futures have recovered on the general global bounce, to be currently trading just £2/t lower on the week. While the drop in futures encouraged some ‘better sellers’ in the deferred position, against few buyers, spot prices hardly moved as merchant shorts bid for supplies into an increasingly ‘logistical-driven’ market.
In summary, all US and EU markets hit contract lows this week, and that includes the UK if you take the calendar year (yearly low was set last December), but do markets feel they are at the bottom? Recent tenders (Egypt/Algeria) show no shortage of global cash wheat, and the trade will determine whether the ‘bounce’ is the start of a firmer trend, or just a ‘another dead cat bounce’. Long term prospects have signs of supportive factors (US plantings/crop ratings and the fund shorts), but short term it’s all about too little demand and too much supply.