Wheat is being marketed against a background of fundamental oversupply, but the behaviour of funds in Chicago, something not necessarily driven by fundamentals, is proving important.
“The market came down on global economic concerns that were mainly linked to crude oil prices falling through the floor plus a slowdown in the major economies, especially China,” David Woodland, trader at Gleadell Agriculture told Agritrade News. “What you have now is the situation where we are seeing crude values bounce by $15 or $20. There is talk of better economic data coming out of places like China.
“On top of that, despite a fundamental oversupply of grain this year that could spill into the next marketing year, the size of the fund short in Chicago is proving a big problem,” he continued. “Along with the odd weather issue, mainly linked to dryness in the US plains, North Africa and parts of the Ukraine, the market is vulnerable to bouts of short covering, given the oversupply and bearish fundamentals.”
“The funds are bound to buy at some stage,” Mr Woodland noted. “They won’t give a stuff what they think about the fundamentals. If they decide to buy, they will buy. It is almost a technical position, the fund short against the bearish fundamentals.”
Closer to home, there are big stocks in Europe. “We are going to see a wheat carry out of 20 million tonnes plus in Europe, of which the majority will be held by the French,” he said. “There is still massive uncertainty about Egypt and whether it will take a tolerance on ergot in its wheat.”
Mr Woodland explained that Egypt’s new head of quarantine has insisted that the country will have a zero tolerance policy, even though the agriculture minister has said it will accept a 0.05% tolerance. “There is a bit of a clash there, but that doesn’t help when you have got the vessels afloat and waiting to arrive in Egypt,” he observed. “Certainly zero tolerance would not be preferential to French suppliers.”
He reported big build ups of stock in Europe and the former Soviet Union. “You have got farmer retention prominent across most of the Black Sea and Europe,” he said. “In the UK we have got a very steady programme of exports at the moment, which has underpinned farm levels, but there are signs of this easing as we get into the final quarter – April- June. Then we will really see the whites of their eyes on how much wheat there is on farm - according to the figures, there is a lot.”
Meanwhile the new wheat crop looks set to be a big one, but it could still be subject to weather problems. “We have got out of the winter now and crops have come out probably in the best shape that they have been for many a year,” Mr Woodland concluded. “If we have a major weather problem, potentially there is a substantial downside on the new crop.”