Having rallied to 18-month highs early last week, world wheat markets have subsequently taken a negative turn with US Chicago Board of Trade (CBOT) wheat futures leading the move lower.

Expectations for sizeable US wheat export trade to China following the signing of 'phase one' of the US/China trade agreement so far has failed to materialise, triggering a fund sell-off. The worsening coronavirus outbreak has added to the negative market sentiment with a perception that it will inhibit trade to China. European markets have followed and London wheat futures have now lost £7 from the recent highs.

European wheat markets traded steadily lower this week in the wake of last Wednesday's global price spike. Many of the supportive factors remain in play, but uncertainty over US-China trade talks and nervousness surrounding the Coronavirus outbreak were enough to spark a round of fund selling in agricultural commodities, including Chicago wheat and corn. 

Data from Brussels put EU wheat exports 70% ahead of last year's pace and this looks set to continue, with French wheat currently the cheapest in the world. Despite this, Matif mirrored Chicago, trading €5 lower in the aftermath of last week's 17-month highs.

The International Grains Council (IGC) published its world Supply & Demand report this week, in which it cut consumption by two million tonnes and year-end stocks by one million tonnes on its previous estimates. However, consumption at 755.9 million tonnes is a record level and 17.6 million tonnes up on last year. Stocks are seen at 271 million tonnes which is also a record high and 5.7 million tonnes up on the year.

Despite world wheat stocks being seen to reach record levels on paper, world wheat prices rallied further this week, driven higher by the fast export pace from the world's major producers. Ukrainian wheat exports have reached 15.6 million tonnes so far this season – 4.2 million tonnes ahead of last year. 

US, French and London wheat futures markets have all continued to rally this week, reaching highs not seen for almost a year and a half.

Following the signing of the 'phase one' trade deal last week, the US market is firmer as a result of expectations for export trade to China. Support there also comes from their export pace which is running 15% ahead of last year.

French wheat futures are higher on strong EU export demand which, at 15.7 million tonnes so far this season, is running 71% ahead of last year. The strike action that is crippling French export facilities is also creating a technical rise in French wheat futures as shorts try to buy back their positions in the nearby contract.

US wheat futures markets continued to rally earlier this week, reaching 14-month highs ahead of the US and China signing 'phase one' of their trade deal. Bullish traders were encouraged by the view that, in its part of the agreement, China would make significant purchases of US agricultural products and start buying notable volumes of US wheat. 

However, the text of the agreement stated purchases would be made at market prices based on commercial considerations. In other words, wheat purchases would only be made if the wheat was needed and prices were favourable. 

As sterling continues to fall, ex farm rapeseed prices in the UK remain supported. Markets are also seeing strong demand from crushers for the winter period as vegetable oil markets continue to find good support.

This week will also see the 'phase one' agreement between the US and China as part of their ongoing trade deal negotiations. However, as Brazilian soybeans are currently cheaper than the US, it is unlikely that China will switch supply unless there is a significant increase in demand. 

The world wheat market took a bullish turn over the festive season and that trend has continued during the first full trading week of 2020. The Chicago Board of Trade (CBOT) wheat futures hit highs not seen since last June. Politics, weather and trade have all combined to encourage prices to move higher.

US wheat futures found particular support when Donald Trump's administration confirmed that 'phase one' of the new trade agreement between the US and China would be signed on the 15^th of January. Market bulls got very excited by this news, with rumours that China might fulfil its wheat import quota which would allow it to import up to 9.6 million tonnes of wheat in 2020. 

This week the Department for Environment, Food and Rural Affairs (DEFRA) published its final UK wheat area, yield and production estimates for 2019. There were minimal changes to its provisional estimates but the report included a reminder of how significant the crop was at 16.225 million tonnes.This is just 58,000 tonnes below the provisional estimate – the largest UK crop since 2015 and 2.67 million tonnes up on the 2018 harvest. 

Allowing for a minimal commercial carry out on paper, there is an exportable surplus of approximately 2.9 million tonnes. With 900,000 tonnes of that likely to be shipped by the end of this calendar year, there will be approximately 2 million tonnes to either compete for export or roll over to the 2020 season.

UK wheat markets were buoyed by strong domestic demand and optimism around global trade this week, with May '20 LIFFE trading up to £151.75 on Tuesday from last week's low of £145. The General Election result pushed sterling to its highest level since May 2018, peaking at $1.35 on Friday. 

However, as the newly formed Conservative majority government looks set to rule out any further Brexit extension, some are suggesting this increases the chance of the UK leaving the EU without a trade deal. As a result, sterling fell back to pre-election levels and firmed UK grain prices. 

Sterling reacted positively to the UK election result, gaining up to 2% versus the euro as the Conservatives secured a majority of at least 78 seats. However, this currency move is negative for wheat prices as it makes imports cheaper and exports more expensive. Wheat prices have had to adjust to counteract this, with London futures easing lower on Friday morning. 

Nevertheless, the fall in UK prices was limited as European and US markets moved higher. US wheat futures rallied on more positive news over the US trade dispute with China. 

The United States Department of Agriculture (USDA) published their latest report on Tuesday. It had little effect on the soybean market as US stocks remained unchanged from the previous month's report. While global stocks were increased slightly, it wasn't enough to create any significant market movements.

In Europe this week, rapeseed prices traded at €399.75 which is the highest level since 2017. Analyst, Stratégie Grains, forecast the French 2020 crop to be 18.46 million tonnes.

US wheat futures from the Chicago Board of Trade (CBOT) put on an impressive performance at the end of last week. Last Friday, they jumped the equivalent of £5 per tonne and saw overall gains of 10% since mid November. The sharp move was allegedly brought about by Southern Hemisphere crop problems – particularly comments from Argentina suggesting that the main wheat production areas would see 37% yield losses. 

However, these gains were not sustainable. US wheat quickly became uncompetitive in the global export market and CBOT futures have now all but lost last week's gains.  

 Despite a lack of fresh dynamic market drivers, US wheat futures have seen volatile trade over the past three trading days following their Thanksgiving break last Thursday. On Friday they rallied 20 cents per bushel – equivalent to over £5 per tonne – which raised overall gains to more than 10% since mid November. This was supposedly triggered by cuts to yields in the primary wheat production areas of Argentina.

However, yesterday all of the gains made on Friday were lost as it became apparent that US wheat is too expensive to capture any substantial share of the current export opportunities.

This week French wheat futures rallied to highs not seen since mid July. The strong EU export pace continued to progress and has now reached 10.77 million tonnes – 3.7 million tonnes ahead of last year. 

Slow farmer selling and ongoing wet weather conditions which are delaying the French corn harvest and winter wheat planting are both contributing factors to the rise in wheat prices. However, the French are still enjoying more favourable planting conditions than we are in the UK. By 25^th November, wheat drilling in France had advanced 6 points during the week to 80% complete, but the crop condition fell 3 points during the week to 75% rated 'good' to 'excellent'.  

America's benchmark CBOT traded almost 16 cents firmer on Monday, mainly due to short covering ahead of this week's Thanksgiving holiday. There was also some spill over support from the EU where news of delayed drilling continues to filter through. The US corn harvest is now 84% complete with more heavy snow forecast for the long weekend. 

Despite this, a common theme continues to burden US wheat and corn prices in a distinct lack of price competitiveness on the global market. For wheat, Europe and the Black Sea continue to mop up the bulk of demand while for corn, cheaper cargoes from South America and Ukraine are the main competition. 

Official figures from France illustrate the issues that the current weather pattern is having on 2020 harvest potential in the west of Europe. In its weekly update on Friday, FranceAgriMer advised that French farmers had only advanced their winter wheat planting by 3% to 74% complete, compared to 97% this time last year. Additionally, there was a sharp drop in the crop ratings, with 78% seen as 'good' or 'excellent' which is down 6 points on the week and 4 points on last year.

The UK enjoyed a few dry days earlier this week, allowing land work to resume in some areas. Winter wheat drilling has progressed where conditions have allowed, whilst vast areas of the worst rain-affected counties have remained sodden. 

North Africa remained an active buyer, with Tunisia buying 75,000 tonnes earlier this week and Algeria – traditionally supplied by France – holding a tender for January delivery.

The latest data puts EU wheat exports more than 50% ahead of this time last year with over 10 million tonnes shipped, although this is seen as an underestimate. However, this pace will need to be maintained to keep markets buoyant. Analysts, Stratégie Grains estimate EU-28 wheat exports at 28.8 million tonnes – 8 million tonnes higher than last year. 

Russian wheat exporters regained their competitive edge this week, securing significant sales to Egypt for delivery early January. Egypt bought 465,000 tonnes at just over $232 per tonne including freight and, although the two cheapest cargoes were from Ukraine, all the remaining 345,000 tonnes were of Russian origin. 

Russia was clearly determined to maintain their status as the leading supplier to Egypt, after having lost out to France in the previous week's tender.

Concern over new crop wheat planting has driven prices this week. With an estimated winter wheat planted area of just 50%, compared to 95% this time last year, new crop wheat values moved up £7/mt.

Old crop wheat values have followed the new crop as farm selling remains light and domestic consumers still need plenty of cover for the balance of the crop year. 

Brexit uncertainty and winter drilling delays in the UK continue to add volatility to wheat markets. Last weekend's Brexit extension significantly widened the window for tariff-free exports to the EU, which was seen by some as a bullish flag. 

In addition to this, the persistent deluge of rainfall continues to delay the drilling campaign with progress varying from one location and land-type to the next, so farmer selling of 2019 and 2020 crop has naturally slowed. As a result, London futures traded to £148.55 midweek which, along with new crop futures, was their highest level since mid-August.