EU Wheat Consolidates, Old Crop London Wheat Now Cheaper Than New Crop

22/05/13 - EU grains closed mostly higher, with May 13 London wheat posting it's first gain in seven sessions aided by a weak sterling as the market consolidated from hitting fresh 11-month lows yesterday. There are few that would suggest with any degree of confidence that this is the start of a new trend however.

London wheat closed with front month May 13, which expires tomorrow, up GBP0.50/tonne to GBP177.75/tonne and new crop Nov 13 GBP1.75/tonne steadier to GBP178.15/tonne. Paris wheat closed with front month Nov 13 EUR2.00/tonne higher at EUR206.00/tonne.

The pound was under pressure on the back of a 1.3% fall in retail sales in April, with food sales slumping 4.1% last month, along with the release of the minutes of this month's Bank of England MPC meeting showing a second 6-3 split on the thorny issue of whether or not to raise QE. The fall in retail sales was the largest in almost 2 years, taking sterling down to 1-month lows against the euro and a 6-week low versus the US dollar.

New front month Jul13 old crop also is now a discount to new crop Nov 13 London wheat. The differential was GBP14.25/tonne just a month ago, and at the turn of the year Jul 13 commanded a GBP26.25/tonne premium to Nov 13. Much heavier 2012/13 imports than forecast by Defra clearly mean that there's far more old crop wheat around looking for a home mid-May than many expected.

GBP200/tonne feed wheat is now a distant memory, and it could stay that way for a while. German old crop feed barley is currently offered at EUR176/tonne (GBP151/tonne) ex store Saxony, with 12% milling wheat at EUR210/tonne (little more than GBP180/tonne). New crop feed wheat out of Ukraine meanwhile is being offered at USD245/tonne FOB (circa GBP162/tonne).

There are still a few question marks over grain production in the Black Sea this year. American satellite imagery firm Lanworth Inc today cut their forecast for wheat production in Ukraine to 20.3 MMT from 21.9 MMT previously, that's still 29% more than output in 2012 however. Meanwhile they pegged the world wheat crop at 694 MMT, only marginally below the 697 MMT record set two years ago, and 5.9% up on last year. Lanworth also estimated the world corn crop at a record 965 MMT and the world soybean crop at a record 286 MMT in 2013/14.

Welcome rain is in the forecast for Ukraine over the next few days, moving into southern Russia by the weekend and through next week. That should be beneficial for both winter and spring crops if they materialise. "(The) Russian barley crop 2013 has potential to reach 16.8 MMT vs. 14.0 MMT in 2012. Current conditions are favourable for malting barley," said RMI Analytics.

Turkey announced it would sell 240,000 MT of red milling wheat for shipment between May 31 and June 19, the second such tender in the last fortnight, in an attempt to make a bit of room for the imminent (and expected to be substantial) 2013 harvest.

Algeria are tendering to buy 50 TMT of optional origin soft wheat for August shipment. They like to buy French, but that origin may be undercut by wheat from the Black Sea on this occasion.

Jordan passed on their 150 TMT wheat tender yesterday, and immediately decided to retender again overnight.

Egypt remain absent from the market, as their public tenders seem destined to become a thing of the past. There are some reports that they may have bought in Turkey's recent tender offering. The Egyptian government say that they have now bought almost 2.5 MMT of wheat from local farmers, up from just under 1 MMT a fortnight ago.

Germany's March wheat exports were 610 TMT versus 582 TMT in March 2012. That takes Jul/Mar exports to 5.31 MMT, up almost 30% versus 4.1 MMT a year previously. A fair proportion of that has come into the UK. Barley exports of 326 TMT were well ahead of the 65 TMT exported in March of last year and the largest monthly total since April 2011.

The Argentine Ag Secretary said that farmers there will increase their wheat plantings by 40% in 2013/14, due to a combinations of tax rebates and favourable growing conditions. Planting there is already underway.