EU Wheat Mixed, China Steps Up Buying Activity

08/07/13 -- EU grains were mixed with new front month Nov 13 London wheat GBP0.15/tonne firmer at GBP166.70/tonne and Nov 13 Paris wheat down EUR1.25/tonne to finish the day at EUR193.50/tonne.

The market is looking for direction ahead of Thursday's upcoming USDA report. Whilst there are many reasons pointing to lower prices later in the year, there are also a few bullish indicators starting to emerge.

Possibly top of the list of those is Chinese demand. The USDA today reported the sale of 840 TMT of US SRW wheat to China, existing US sales already topped 1.5 MMT as of last week. There have also been recent significant volumes bought from France and Australia, yet the USDA currently only have China down to import 3.5 MMT of wheat in the whole of 2013/14.

Recent reports that over 10 MMT of the recently harvested Chinese 2013/14 winter wheat crop in Henan province may have suffered quality damage prior to harvesting, downgrading it to only suitable for feed, have subsequently been usurped by private estimates suggesting that as much as 20 MMT may be nearer the mark.

Another supportive, if not outright bullish factor, is news that the 2013/14 Russian wheat crop might be diminishing in size. IKAR today cut their forecast from 54.0 MMT to 52.4 MMT, which now places them in line with other private estimates of 52.1 MMT from IPK Informa and 52.0 MMT from the IGC. This is still a decent rebound in output versus last year's terrible 37.7 MMT crop, but not the "bin buster" that was originally advertised.

IKAR estimated Russia’s 2013/14 grain crop at 91.9 MMT versus a previous estimate of 94.0 MMT. SovEcon estimated Russia’s 2013/14 wheat crop at 49.5-51.5 MMT versus a previous estimate of 50.5-52.5 MMT. They have Russia’s 2013/14 grain crop at 83-87.5 MMT versus a previous estimate of 85-89 MMT.

In addition we have news of Argentina invoking an antihoarding law aimed at calming spiralling bread prices, effectively shutting off wheat exports for the remainder of the season. They won't begin harvesting until the back end of the year. Farmers there are estimated by the local Ag Ministry to have sown 2.5 million ha of the anticipated 3.9 million as of last week.

Not so friendly for prices however is news that new crop milling wheat levels in Ukraine are below GBP120/tonne in some areas as the harvest there rumbles on. Grain exports in 2013/14 are expected to be at record levels.

Also bearish is a report on that Macquaire Bank are forecasting CBOT corn levels "significantly below" their May estimate of USD4.50/bu by the end of the year. Whilst corn has been trading above the level of CBOT wheat lately, "normal" may be considered for wheat to be at a USD1.00-1.50/bu premium. That potentially puts Dec CBOT wheat in the USD5.00-5.50/bu region versus the circa USD6.75/bu where it currently trades.

Warm and sunny weather across much of Europe is seen helping crop maturity and speeding early harvesting activities.