EU Wheat Rises On Continued Crop Concerns, Chinese Buying

08/04/13 -- EU grains bounced higher on apparent confirmation of the recently rumoured sales of US wheat to China. Various news wires this morning said that China had bought "14-16 cargoes" of US SRW wheat - said to be close to 1 MMT - for delivery June-December last Thursday. The business was widely rumoured last week, although there has been no official confirmation of yet.

On the day, London wheat closed with front month May 13 up GBP2.45/tonne to GBP201.05/tonne and new crop Nov 13 up GBP3.00/tonne at GBP187.25/tonne even as the pound rose to its best levels against the dollar since Feb 21 following weak US jobs data. May 13 Paris wheat closed EUR2.00/tonne firmer at EUR245.75/tonne, having hit a 2 1/2 month high of EUR247.75/tonne earlier in the day.

These large scale sales to China come hot on the heels of news Friday that, as well as dumping 51% of their corn longs, and 31% of their soybean length in the week through to last Tuesday, funds added significantly to their CBOT wheat shorts. Heavily oversold conditions always leaves the market vulnerable to a short-covering rally.

Crop concerns remain to the forefront in parts of Europe and the US. A FranceAgricole survey found that 38% of French farmers rate wheat yield potential on their farms this year as "significantly lower" than normal, with a further 33% expecting a "slightly lower" crop and with 23% anticipating a "normal" year. Only 4% saw potential as "slightly higher" than normal and 2% of respondents were hoping for yields to be "much higher" than normal.

A different survey said that 57.4% of French growers had no wheat sold forward at all yet, with 12.5% having committed 0-15% of planned output and 13.7% having 15-30% of their anticipated 2013 production sold.

Europe remains too cold in the north and too wet in the south, although "temperatures are expected to finally warm across the region later this week, which should allow winter crop growth to finally improve in northern areas, and spring crop planting to increase," say MDA CropCast. French crop development appears 2-3 weeks behind normal. In the UK, following on from the very cold March, the first week of April was apparently the coldest in 90 years.

North western Ukraine and northern and western parts of the Central Region of Russia are expected to see cold temperatures remain this week, keeping winter crops in dormancy, according to MDA CropCast.

Optimism is still quite high for a sharp rebound in Black Sea grain production this year however. The USDA attaché in Kazakhstan sees grain production there increasing by more than half to 15.0 MMT this year. The Russian Ministry are forecasting a crop of 90-92 MMT versus 70.9 MMT last year, whilst the Ukraine grain harvest may reach 54-56 MMT, from 46 MMT last year say the Ukrainian Agrarian Confederation.

The Ukraine Ministry said that grain exports there this season currently amount to 19.73 MMT including 11.0 MMT of corn, 6.3 MMT of wheat and 2.04 MMT of barley. Agritel suggest that the Ministry may soon announce that they are allowing a further 3-700 TMT of wheat for export. Ukraine early spring plantings meanwhile currently stand at just under 800,000 ha, or 27% of the planned area.

New crop Black Sea wheat is said to be offered around USD255/tonne FOB (around GBP167/tonne) for August shipment, South Korea reportedly paid USD297/tonne C&F for August arrival any origin (thought to be Black Sea) wheat last week.

As is often the case, these cheap new crop offers out of the Black Sea are likely to depress European prices come harvest time no matter what size crop we end up with here.