Paris Wheat Settles At 8-Month Low As 2013 Production Estimates Rise

07/03/13 -- EU wheat futures closed mixed, but mostly lower, as the BoE and ECB both left interest rates on hold and decided against any further QE measures just yet. Once again we had a major body, this time the UN's Food and Agriculture Organisation, suggest a strong rebound in world wheat production this year.

They came up with a 4.3% increase to 690 MMT, only 2 MMT away from ABARES forecast of 688 MMT earlier in the week, and the second highest on record. Both the FAO and the Australians have EU wheat production at 138 MMT this year, which the FAO say is "driven by an expansion in area in response to high prices" saying, despite developments here, that "weather conditions have been generally favourable so far."

Much improved prospects are noted for Russia and Ukraine where output is seen up around 40% and 26% respectively.

MDA CropCast were a little more guarded with their 2013/14 production estimates, but still forecast a global wheat crop of 680.3 MMT, up 45 MMT on last year. With the IGC recently issuing an estimate of 682 MMT, it seems that we have a general figure of 680-690 MMT to pencil in at this early stage for the coming season, if we chose to ignore yesterday's throw away comment for the USDA's chief economist, Joe Glauber, that world wheat output "could climb to record highs" in 2013/14. Record highs mean in excess of 2011's crop of 696.6 MMT which prompted Paris wheat to fall below EUR180/tonne, Chicago wheat to around USD5.75/bu London wheat to GBP140/tonne.

MDA CropCast forecast world barley production this year at 134.2 MMT, an increase of 5.7%, with the EU contributing 52.5 MMT of that which is broadly similar to last season's total. Ukraine, Russia and Canada will see large jumps in output with production there up 11.6%, 16.2% and 28.4% respectively, they said. The latter analyst was interestingly far less bullish on rapeseed production potential in the EU, forecasting a drop in output to 17.84 MMT, which is well below demand which is typically around 22-23 MMT and ABARES suggestion of a crop of 19.6 MMT on Tuesday.

News that grain shipments out of the leading French export hub of Rouen slumped 63% this week to 91,272 MT was a blow, although it has to be noted that last week's total was the highest in more than two years. Morocco was the largest destination taking 59,802 MT of that, with a tiddler of 1,800 MT heading for the UK.

The decline shouldn't be seen as the start of a trend however. Late news coming in suggests that Brussels issued a further 606,691 MT of soft wheat export licenses this past week, an increase of almost 57% on last week and which Bloomberg say is the largest weekly total since December, taking the marketing year total to 13.7 MMT.

India announced it's intention to ship an extra 5 MMT of wheat spread over the next three months, although that news was accompanied by them confusingly setting a minimum price of USD320/tonne FOB, which is around USD20-25/tonne over where current bids are lining up. They are said to currently have grain stocks (including rice) of 66 MMT and a 90-95 MMT wheat harvest on the way imminently.

Syria announced that it's wheat tender that closed on Monday had gone the way of the Black Sea. Jordan's wheat purchase of yesterday was said to be of Romanian origin.

Taiwan bought 93,680 MT of US wheat overnight, said to be it's first such purchase in 5 weeks.

US weekly export sales beat expectations at 618,100 MT of old crop and 210,000 MT of new crop. Unknown destinations (128,400 MT) and Egypt (116,500 MT) were the two largest old crop buyers. China also showed up taking 60,400 MT of the old crop too.

One large US ethanol producer is said to be looking to procure wheat as a feedstock due to tight corn availability and the unusual discount situation for wheat vs corn prices that has developed in recent days.

On the day London wheat closed with front month Mar 13 down GBP0.80/tonne to GBP197.00/tonne and with new crop Nov 13 up GBP0.90/tonne to GBP181.60/tonne. Mar 13 Paris wheat was down EUR3.00/tonne at EUR238.25/tonne, a lowest close for a front contract in 8 months.