EU Wheat Stumbles Despite Strong Old Crop Demand

21/02/13 -- EU wheat futures closed mostly lower as once again early strength subsided in afternoon trade, turning screens red once US wheat futures took a turn for the worse on news for a large dose of precipitation for the Plains and Midwest.

Strong demand for EU wheat continues however, with Brussels issuing another large 588,763 MT of soft wheat export licenses for the week through to Feb 19, bringing the 2012/13 marketing year-to-date total to 12.69 MMT for a hefty year-on-year increase of 46 percent.

Despite that news, Mar 12 London wheat finished down GBP1.60/tonne to GBP204.15/tonne, benchmark May 13 was GBP1.05/tonne lower at GBP206.70/tonne and new crop Nov 13 was GBP0.65/tonne easier to GBP187.50/tonne. Mar 13 Paris wheat fell EUR1.25/tonne to EUR242.50/tonne.

Further evidence of the strong demand for EU wheat was reflected in news from the Germany Statistical Office that Jul/Dec 2012 grain exports were up 44% to 5.9 MMT. Of that total wheat exports accounted for 3.4 MMT, an increase of 61% on the same period in 2011. Barley exports were up 50% to 813 TMT.

Whilst we will have to wait until tomorrow to see if the USDA put any more flesh on the bones of the recently reported US wheat sales to China, Russia and the UK they did today confirm the sale of 110 TMT of SRW wheat to "unknown" - split 50:50 between old and new crop.

That isn't the only international business going on either. Egypt bought 60,000 MT of US wheat yesterday, Ethiopia has a 35,000 MT tender pending, Bangladesh is in for 50,000 MT and Syria’s tender deadline is March 4th. In addition to that Tunisia bought 67,000 MT of optional origin durum wheat yesterday and Jordan purchased 50,000 MT of optional origin wheat overnight. This morning we had news of Iraq booking 300,000 MT of Australian wheat along with a further 180,000 MT from the same seller going to Iran.

Black Sea sellers remain largely out of the market. Kazakhstan said that it's Feb 1 grain stocks were down 34.6% to 12.4 MMT. Any surplus it does have to sell is likely to go to Russia.

Whilst the old crop supply & demand equation continues to look tight, things are starting to develop a more bearish look going forward.

Day one of the USDA's Outlook Forum, which provides their first glimpse into plantings and production for the coming season, pegged US all wheat plantings at 56 million acres - around a quarter of a million up on the area sown for the 2012 harvest. Despite that, production is seen down around 7.5% this year to 2.1 billion bushels (57.15 MMT) versus 2.27 billion (61.76 MMT) in 2012.

Corn plantings of 96.5 million acres will however produce a record crop of 14.53 billion bushels, up nearly 35% on last year's drought-hit production. Meanwhile, a soybean area of 77.5 million acres will also provide output of a record 3.405 billion bushels, up 13% on 2012. This all depends on a return to "normal" yields this year of course, and with no serious weather problems.

US wheat prices were forecast to average USD7.00/bushel in 2013/14, with corn falling to USD4.80/bushel and soybeans down to USD10.50/bushel.

US winter wheat prospects are looking a fair bit brighter than they were a month or so ago. "A powerful storm today is causing heavy snowfall in top wheat states in the Great Plains. This storm would lift into the Midwest bringing welcome precipitation to drought affected corn farms in Iowa and Minnesota. The overnight radar showed very heavy snowfall in central Kansas and northern Oklahoma. The forecast is for heavy snow that, when melted, would be around one inch of moisture, greatly benefiting dry wheat farms," say Martell Crop Projections.

"Kansas wheat farms have accrued a 2 inch soil moisture deficit since October 1 with reduced rainfall. Oklahoma, the driest of the bread-wheat states, has a 3.5 inch moisture deficit. Heavy storm precipitation is very welcome in the US top 2 winter wheat states," they add.

The USDA attaché in Dehli estimates the upcoming Indian wheat crop at 92.0 MMT, slightly lower than the local Ag Ministry's 92.3 MMT forecast and down 3% on last year's record 94.9 MMT. Despite a recent active export program they are still expected to have large carryover stocks at the end of the season, this will enable them to sell around 8 MMT (from 6.5 MMT in 2012/13) of wheat to foreign buyers in 2013/14 the attaché said.