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Ups and downs in the wheat market

The recent US/China tariff deal seems to have been taken favourably by US traders, according to commodity trader Gleadell.

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The company’s latest market report showed that US wheat prices are slightly higher on the week, mainly due to overspill support from firmer corn and soya bean markets resulting from last weekend’s agreement between the US and China to suspend new tariffs for 90 days to prevent the trade war from escalating.

 

However, according to Gleadell, the agreement is open to interpretation. China would also need to open up its vast market, and Chinese buyers still comment that US bean import tariffs need to be eliminated before they will buy.

 

Australia pegged its 2018 wheat production at 17 Mt. This was higher than expected, as losses caused by adverse weather experienced during the sowing/growing season appear lower than originally feared.

 

EU prices are slightly weaker on the week, not helped by news that Egypt’s state buyer GASC failed to secure letters of credit for at least 16 cargoes that have been purchased, causing delays in payment and confusion among suppliers.

 

Following reports from the Finance Ministry that nothing would be done until January, shippers have been asked by GASC to delay December arrival shipments until January.

 

Reports that Russia will send trial cargoes to both Algeria and Saudi during the next four months, looking to boost exports, is seen as a long-term threat to the EU, as the country has struggled to break into this market due to historical quality issues.

 

The importance of these markets is demonstrated by the fact that half of EU external exports to date this year have been shipped to these destinations.

 

The UK market is up about £2/t on the week, with the market still focused on the Brexit vote next Tuesday. Market fundamentals continue to tighten as the festive period nears, as fresh farmer selling, and lorry availability, lessen.

 

Long term, the current price structure would indicate good values to growers, although next week’s Brexit vote, and any currency implications, will influence the next price direction.

 

Gleadell commented that, the US/China deal could be read either way, but it seems to have been taken favourably by US traders.

 

“The suspension of the tariff increase is not a suspension of the trade war, it is a suspension of any escalation of the trade war. If the parties don’t agree in further talks, increases are likely to be imposed,” said David Sheppard, Gleadell’s managing director.

 

“EU markets continue to watch signs of falling Russian exports. In the UK, it remains all about Brexit and the key vote next Tuesday.”

 

UPDATE (13 December 2018): The UK government has postponed the Brexit vote until the New Year.

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