The US market is trading up on the week as markets continue to consolidate. Extreme cold weather, increasing the risk of winter kill, continues to prevail across many areas of the Midwest and Plains through into early February. This, and talk of record low US winter wheat sowings, is helping to underpin the market, although snow cover is more than adequate in most places. Rumours of possible purchases of US wheat by China, if US/China trade talks due next week progress well, higher global prices and talk of lower-than-expected Russian supplies are also seen as supportive factors to US prices.
European prices are also higher on the week as firmer global markets help to support. Despite sluggish non-EU wheat exports, still reported 27% lower y/y, markets are reacting to signs of falling Black Sea supplies, as both Russian and Ukrainian ministry officials have raised concerns over the current export pace. Russia’s Ag Ministry has asked exporters to submit all export sales for the remainder of the season to determine the full extent of their export program. In the Ukraine, the ministry has put exporters ‘on warning’ over further exports, as milling wheat shipments have already reached 83% of the agreed 8mln t target. The big question is, what is the level of demand still to be covered?
UK remains Brexit driven, as sterling has strengthened on the likelihood of a softer or delayed Brexit. The rise in sterling has seen London futures, on both old and new crop, ease back to their lowest levels since mid-November. Consumer coverage appears adequate, with little enthusiasm to extend cover in the deferred position, due to the uncertainty over Brexit.
In summary, the apparent decline in Russian availability is at last pushing global prices higher and, if the US/China trade talks go well, the rumoured Chinese purchases of US wheat would clearly be supportive – but it is certainly true the US has the stocks to sell! However, while this would also support European prices, the outlook in the UK is less clear. If the UK drops out of the EU with no deal, the pricing mechanism of future UK wheat shipments into the EU would then fall under the current EU import quota system and we would have to compete against other third-country supplies, including the Black Sea countries.