EU Wheat Rally Pauses Ahead Of USDA Report

10/07/12 -- EU grains finished mostly lower Nov 12 London wheat down GBP2.00/tonne to GBP183.00/tonne and Nov 12 Paris wheat EUR0.25/tonne easier at EUR248.50/tonne.

After a prolonged rally that has seen Nov 12 London wheat rise 25% in less than two months, a bit of profit-taking ahead of tomorrow's USDA World Supply & Demand and stocks reports was perfectly understandable.

There's still plenty for the bulls to grab onto though. Ukraine analysts UkrAgroConsult pegged the grain harvest there at 43.4 MMT, more than 2 MMT down on their previous forecast, citing in particular a worsening outlook for this year's corn crop.

They now estimate that at 20 MMT, 5.6% down on their previous estimate and 12% below last season's record 22.8 MMT crop. This figure is also 4 MMT below the USDA's current prediction.

Ukraine's 2012 wheat crop estimate was left unchanged from last month at 14.2 MMT, although this is 36% down on last year it is actually 1.1 MMT more than the USDA forecast in June.

Kazakhstan's Ministry of Agriculture said that they have not escaped the drought that has cut Russian and Ukraine cereal production this year, estimating their grain crop to halve from last year's record to around 14 MMT.

That is going to leave what are traditionally the three cheapest sellers in the marketplace with a lot less grain to export at giveaway prices in 2012/13.

Heavy rain across the UK and France continues to delay the harvest and raise quality concerns. Milling wheat premiums have sky-rocketed in the past couple of weeks. If the French and German crops fail to cut the mustard then there could be a lot of feed wheat around in Europe looking for a home.

Tomorrow's USDA report is expected to be of more significance for corn and soybeans than for wheat. US winter wheat production is seen rising by almost 20 million bushels with 2012/13 ending stocks increasing by nearly 30 million bushels, although usage could be increased by virtue of extra demand from the feed sector due to a sharp reduction in anticipated corn output.