EU Wheat Higher On The Day, Lower On The Week

28/12/12 -- EU grains closed mostly higher with Jan 13 London wheat up GBP1.10/tonne to GBP206.75/tonne, May 13 also firming GBP1.10/tonne to GBP211.75/tonne and new crop Nov 13 GBP1.50/tonne higher at GBP186.75/tonne. Jan 13 Paris milling wheat rose EUR1.50/tonne to close at EUR251.25/tonne.

For the holiday-shortened week as a whole Jan 13 London wheat lost GBP3.75/tonne, May 13 fell GBP3.25/tonne and Nov 13 lost GBP2.55/tonne. Jan 13 Paris wheat declined EUR3.25/tonne.

Fresh news has been pretty thin on the ground this week, as you might expect. Ukraine said that they had exported 14 MMT of grains to date so far this marketing year, that includes 5.8 MMT of wheat, 6.2 MMT of corn and 1.8 MMT of barley. Some suggest that they may attempt to squeeze out another few cargoes of wheat before the export door is shut. Even so, they are more or less out of the market.

In South America the quality of this year's harvest is still being assessed, although the signs aren't promising. The Buenos Aires Cereals Exchange estimated this year's Argentine wheat crop at 9.8 MMT, unchanged from previous estimate, but more than a third down on a year ago. They said that 67.4% of the rain-battered wheat crop has been harvested versus 78.5% a year ago.

The are tentative signs that the much-anticipated switch in global wheat demand to the US has begun. The USDA today announced weekly wheat export sales in excess of 1 MMT - the best weekly total in almost two years. Egypt were a featured buyer, taking 405 TMT of the that.

London wheat is almost GBP20/tonne off the contract highs, and it's fortunes for 2013 seem mainly tied to external influences such as the last ditch attempt by President Obama to avert a US "fiscal cliff" disaster.

The other big external influence to look out for in the New Year is fund activity. Will they continue to maintain a "risk-off" mentality and exit the grains for safer, if less potentially lucrative, asset classes? Or will they return to the foray with renewed vigour in 2013? As ever that is a very difficult one to call.

From the fundamental viewpoint we have EU exports running well ahead of last year's pace and signs that demand is switching to the US. Russia/Ukraine are as good as sold out.

In the Southern Hemisphere, Argentina look like having a very small and low quality crop. Australia will keep chipping away, although their output is likely to be down at least 25% from last year.

Meanwhile, demand is expected to remain robust with China importing much more wheat than in previous years and Japan incorporating wheat at the highest levels in animal feed rations in at least 20 years.

Production prospects for 2013 will soon start to be in focus. The US winter crop headed into dormancy in the worst condition it had been in since the USDA started issuing crop condition reports in the 80's. Russia is a mixed bag, so too is Europe with generally good conditions in the east getting worse as you head west. In Ukraine things look very promising at the moment. India's crop is much closer to hand, and they are expecting another bumper harvest in Mar/Apr.