World wheat markets continued to move lower at the beginning of the week, extending the trend we have seen since the beginning of 2019. Speculative funds took their short positions to over 120,000 contracts in US wheat futures markets, leaving them technically very oversold and due a bounce.
The funds seem driven by the poor US wheat export pace and also by upbeat crop forecasts for most of the world's major wheat producers for 2019/20. However, those crops are far from being in the barn. The Northern hemisphere winter may have been kind but it is the spring season that is critical for developing crops and it is rare to not see a weather problem of some sort develop.
Tuesday saw US markets bounce, posting their strongest rally since last summer as funds took some cover. It is worth noting that in the US, southern corn planting is delayed by adverse weather.
UK markets have been following US markets to a degree and are having to manage Brexit driven sterling volatility. Having moved close to contract lows on Monday, Tuesday's bounce continued through to the middle of the week. Clarity is still sought on the UK wheat area with the 100,000 hectare difference between the Defra survey and the Basic Payment Scheme data. The latest customs data show UK wheat imports at the end of January reaching 1.27 million tonnes. The market still has to price in a further half a million tonnes before the end of the season to reach the Defra balance sheet of 1.7 million tonnes. We have learnt today that the UK will not impose tariffs on imported EU cereals should a hard Brexit prevail.