EU Grains Grind Lower, Impending Record Corn Crop Weighs

16/09/13 -- EU grains closed mostly lower with Nov 13 London wheat settling GBP0.30/tonne easier at EUR152.20/tonne and Jan 14 also GBP0.30/tonne weaker at GBP155.15/tonne. Nov 13 Paris milling wheat fell EUR1.25/tonne to EUR185.00/tonne whilst Nov 13 Paris rapeseed settled EUR3.00/tonne lower at EUR373.0/tonne.

The European market continues to grind lower on prospects for a record world wheat and corn crop in 2013/14, although the strong pace of EU wheat exports this far this season appears to indicate that the market doesn't really need to go down from the point of view of attracting any more buying interest.

This strong demand is for European milling wheat though, not feed wheat, and there will be even less interest in the latter once the global corn harvest gets going in earnest. New crop corn on the Black Sea is currently priced around USD40/tonne cheaper than feed wheat on an FOB basis (at less than GBP120/tonne). Note too that competition for wheat is also coming from a world barley crop that was forecast almost 10% higher than last year in Friday's USDA report, including a 6.5% rise here in Europe.

The pound rose to a new 8-month high against the dollar today, and sat just below a similar high versus the euro set on Friday, which will aid imports but do little to help UK exports. London feed wheat for Jan 14 is less than one euro/tonne cheaper than the equivalent Paris milling wheat contract based on tonight's closing levels.

Both the Ukraine and Russian corn harvests have only just begun, but early yields are said to be significantly better than a year ago. Both are expecting record production, with corn exports also likely to be at all-time high levels.

The EU Commission's MARS unit said today that "the EU-28 outlook for cereals remains favourable and well above both last year’s levels and the 5-year average, even though the grain-maize yield has been lowered compared to our last Bulletin."

They estimated EU-28 soft wheat yields at 5.76 MT/ha versus the 5.71 MT/ha that they forecast in August, that's up 2.3% on the 5-year average and 6.3% higher than last year.

They also increased spring barley yields from last month's 4.34 MT/ha to 4.41 MT/ha, a 15.1% hike on the 5-year average and 12.2% up on a year ago.

Winter barley yields were left unchanged from last month at 5.51 MT/ha, up 4.8% on average and 5.8% more than in 2012.

EU-28 OSR yields were marginally trimmed to 3.09 MT/ha, that's down slightly on last year's 3.11 MT/ha but a little above the 5-year average of 3.04 MT/ha.

Corn yields were cut from the 6.97 MT/ha forecast in August to 6.88 MT/ha, although down slightly versus the 5-year average of 6.98 MT/ha, that's still nearly 14% up on a year ago.

For the UK specifically there were no alterations to last month's yield forecasts. "The summer period was relatively dry and warm in England, providing good conditions for cereals to reach maturity and allowing farmers to harvest them appropriately," they said.

Wheat yields here are seen averaging 7.33 MT/ha this year, lower than the HGCA's 7.6-7.7 MT/ha estimate, but still up 16% on last year and amazingly a little above the 5-year average.

UK spring barley yields were estimated at 5.44 MT/ha, up 9.5% on last year and 2.5% above the norm. Winter barley yields were forecast at 6.62 MT/ha, up 4% on last year but essentially "average" compared with the last 5 years.

UK OSR yields are unsurprisingly down compared with last year and the 5-year average, although not by anything like as much as might have been expected in the spring/early summer. They placed these at 3.32 MT/ha versus 3.40 MT/ha in 2012 and 3.47 MT/ha on average.

In other news, the Russian grain harvest has now reached 69.2 MMT off two thirds of the planned area. Wheat accounts for 43.3 MMT of that off 66.7% of the anticipated combinable area. Wheat yields are averaging 2.59 MT/ha, up 38.5% versus last year.

The Russian Deputy Agriculture Minister indicated that the government may only buy 2-3 MMT of domestic grains, beginning at the end of this month or early October, to replenish their depleted intervention stocks. That's substantially less than the 7 MMT that the trade were expecting. As well as wheat they may also buy corn and barley, he suggested.