EU Wheat Modestly Higher In Quiet Trade, Record Crops On The Horizon Though

04/07/13 -- EU grains closed firmer with Jul 13 London wheat (which expires on tomorrow and has an open interest of zero) nominally finishing the day GBP1.25/tonne higher at GBP155.75/tonne. Benchmark new crop Nov 13 ended also GBP1.25/tonne higher at GBP167.00/tonne and Jan 14 closed up GBP0.90/tonne at GBP168.50/tonne. Nov 13 Paris wheat rose EUR2.00/tonne to close to EUR196.75/tonne.

With US markets closed for the Independence Day holiday it was always likely to be a quiet one, and so it proved. It remains to be seen when the US market re-opens again tomorrow what it makes of the latest developments in Egypt.

It appears that there was probably some protection built into the prices GASC paid for wheat on Tuesday, considering that the average price of USD263.44/tonne C&F was almost USD5/tonne higher than that paid by Tunisia on the same day - a destination that would have had a more expensive freight cost.

Reuters report that the head of the Russian Grain Union forecast that Egypt's wheat imports will fall to 7-8 MMT in 2013/14, versus the USDA's current projection of 9 MMT. He added that he expects Russia to supply around half of that total versus 2.7 MMT in the season just ended.

The killer comment in his statement however was that he expects domestic Russian 3rd grade milling wheat prices to fall to USD180/tonne by September. The current price is around USD240/tonne. If he's correct then that would suggest Russian wheat FOB the Black Sea at less than USD200/tonne. That's more than 20% below the USD251/tonne paid by Egypt on Tuesday. A similar cut of 20% off tonight's London wheat close would take Nov 13 down into the low GBP130's/tonne!

The Russian harvest is now underway in the Samara district, some 2-3 weeks earlier than normal. Grain output here is expected to be up 36% on last year, say the Russian Ag Ministry. They also say that nationally 2.7 million hectares of grains have been harvested so far, producing a crop of 9.7 MMT with yields averaging 3.56 MT/ha. This time a year ago the harvest stood at 5.5 MMT with yields at 2.83 MT/ha.

Of the total harvested so far wheat stands at 7.7 MMT off 2.2 million ha with an average yield of 3.49 MT/ha, up 22%. Barley accounts for a further 1.5 MMT of the total, with yields of 4.43 MT/ha, up 39% on this time a year ago.

Also on the Black Sea, Ukraine has now harvested 6.82 MMT of grains off 2.72 million hectares, with yields averaging 2.5 MT/ha, up 42% versus this time in 2012. That total includes 4.21 MMT of wheat and 2.29 MMT of barley. The Ukraine Ag Minister forecast the 2013 wheat crop at 21.0 MMT, up 33%, and 1.5 MMT more than the USDA currently predict.

The FAO increased their forecasts for world wheat and corn production this year. They pegged the global wheat crop at a record 704 MMT, up 2 MMT from last month and 8 MMT above the current USDA suggestion. That is a 6.8% increase versus 2012. They noted "good prospects in nearly all major producing countries with the exception of the US." That's not quite the full story though, they have 2013/14 world wheat ending stocks at 169 MMT, which is actually 12 MMT lower than both the USDA and IGC, thanks to a much lower projected carry-in from 2012/13.

For world corn, the FAO predicted a crop of 972 MMT, up 9 MMT on last month and versus the USDA's current prediction, and also a record. They have world corn ending stocks at 175 MMT in 2013/14, well above the USDA's 152 MMT and the IGC's 149 MMT.

Final figures from Brussels for the 2012/13 season show 18.9 MMT of soft wheat export licences were cleared (versus 12.5 MMT in 2011/12). They also issued 5.05 MMT of barley export licences (versus 2.9 MMT in 2011/12) and authorised 10.8 MMT of corn imports (up from 6.15 MMT in 2011/12).

The European Commission forecast the 2013/14 EU-28 soft wheat crop at 129.96 MMT, up 4.2 MMT or 3.3%, on last year. They have durum output at 8.83 MMT versus 8.53 MMT last year and the barley crop at 58.8 MMT versus 54.94 MMT in 2012, an increase of 7%. In addition they gave us a EU-28 rapeseed crop estimate of 20.13 MMT, up 4.5% versus 2012. The biggest surprise though was their prediction for an EU-28 corn crop of 70.02 MMT, up nearly 17% on last season. Bear in mind that these figures do now include new member state Croatia (who have a wheat crop of around 600 TMT normally, along with 1.8-2.0 MMT of corn). Even so, that corn number would be a record and is well above the USDA's EU-27 estimate of 63.875 MMT.

Both the ECB and BOE kept interest rates in the UK and Eurozone on hold at 0.5% today. The pound fell, and looked in danger of slipping below 1.50 against the US dollar for the first time since mid-March at one stage, before staging a mini late recovery, although it still stood 2 cents down on the day heading into the close. An accompanying statement from the BOE that effectively said that interest rates were unlikely to rise any time soon was to blame.

Jordan bought 100 TMT of milling wheat, split half for October delivery at USD283/tonne C&F, and half for December delivery at USD4/tonne more. Algeria are tendering for 50 TMT of optional origin feed barley for August shipment.

In the UK, wheatfeed prices continue to fall, with GBP132/tonne reportedly traded for pellets on a Oct/Apr winter run out of South Eastern mills yesterday, down from GBP140/tonne at the end of last week. Interestingly, the seller was said to be a feed manufacturer.