EU Wheat Rebounds From Early Lows

13/02/13 -- EU wheat futures extended recent declines in early trade, but generally recovered those losses to close marginally higher at the end of a choppy session. By mid-morning Mar 13 London wheat had slipped below GBP200.00/tonne for the first time for a front month since October 17. Mar 13 Paris wheat meanwhile stumbled to levels not seen in a front month since last July.

At the close though Mar 13 London wheat was GBP0.25/tonne higher at GBP201.35/tonne, benchmark May 13 unchanged at GBP203.85/tonne and new crop Nov 13 firmed  GBP2.45/tonne to GBP184.3/tonne. Mar 13 Paris wheat was EUR0.50/tonne higher at EUR242.25/tonne.

The pound was under renewed pressure after Bank of England governor Mervyn King said that he now expects inflation to rise to "at least" 3% by the summer and to remain above the Bank's 2% target for two years. This sterling weakness helped buoy London wheat a little.

Brazil, Argentina and Malaysia returned from a two day holiday, although China remains off the scene for the rest of the week. That seems to be contributing to relatively thin market conditions this week.

Outside influences are also playing a part and encouraging some spec money to exit the arena.  Barclays announced 3,700 job losses yesterday, and said it was exiting speculative trading in softs and agriculture with hedge funds due to "reputational reasons" in a sudden attack of conscience. Leading French bank BNP Paribas also announced yesterday that it was closing a USD214 million agricultural commodities fund after Oxfam criticised them for speculating on food prices. Oxfam are urging other banks to do likewise.

Meanwhile back to the fundamentals, beneficial snow and rain moved across the southwestern plains yesterday, bringing modest drought relief to the region and pressing US wheat prices to 7 1/2 month lows in overnight trade. Rain has also arrived to some of the parched areas of Argentina, with more on the cards this weekend and next week. With those rains come some welcome cooler temperatures too. Reproductive corn and soybeans are desperately in need of cooler and wetter weather to avoid yields taking a hit.

At least these lower prices have flushed out a few buyers, although Jordan only bought half of the 100 TMT of optional origin wheat that they tendered for overnight. Algeria have also issued a new tender for 55 TMT, South Korea is in for 75 TMT of feed wheat and an Iraqi tender is expected to close this weekend.

India however also invited fresh bids for 245 TMT of milling wheat for Mar 15-Apr 30 shipment as it tries to make some room for the impending 92 MMT or more new crop, harvesting of which is likely to start at the end of next month.

Russia sold almost 65 TMT of its latest offering of intervention grain, taking total sales to in excess of 1.8 MMT since they began auctioning off government owned supplies on Oct 23.

The USDA Bureau in Beijing said that wheat production there last year was nowhere near the USDA's official estimate of 120.6 MMT, releasing an forecast of only 108.0 MMT. The quality of last year's crop is also in question, so it is thought that some additional purchases of premium quality wheat from the US and/or Canada could be imminent.

FranceArgriMer reduced their soft wheat export estimate from 17.14 MMT to 16.88 MMT due to a fall in sales within the EU and lower on farm use. Total French exports for the first six months of the marketing year to the end of 2012 were down 12%. They therefore raised their 2012/13 projected ending stocks forecast from 2.29 MMT to 2.42 MMT.