EU Grains Rangebound, In What Direction Will The Breakout Be?

25/02/14 -- EU grains finished mixed but mostly higher, following a firmer close in US wheat futures last night, although sideways still seems to be the residing pattern for the time being. There is however a growing feeling that, barring an unforeseen weather disaster, wheat prices could ultimately end the year lower than where they presently sit.

The session closed with Mar 14 London wheat ending up GBP0.50/tonne at GBP156.00/tonne, and with new crop Nov 14 London wheat closing GBP0.05/tonne lower at GBP147.50/tonne. Mar 14 Paris wheat was up EUR0.50/tonne to EUR199.00/tonne, Mar 14 Paris corn was down EUR1.00/tonne to EUR172.25/tonne, whilst May 14 Paris rapeseed fell EUR0.25/tonne to close at EUR389.75/tonne.

The last time Paris wheat closed outside the EUR190-200/tonne range was Jan 8, whilst London wheat has been stuck in the EUR150-160/tonne range and Paris corn within an even narrower confines of EUR170-175/tonne during the same period. We're due a breakout, but when will it come, and in which direction will it be?

Rabobank joined the list of analysts calling for lower wheat prices by the end of the year. They predict that Chicago wheat will fall to $5.60 by the end of the year, some 80 cents below their previous forecast and a similar discount to where the Dec 14 future currently trades. That's around a 12.5% fall versus today's values.

A decline of the same magnitude for Jan 15 London wheat would see it fall almost GBP20/tonne from where it currently resides - close to GBP130/tonne! A 12.5% drop in Jan 15 Paris wheat would see prices around EUR24/tonne lower than where they are today - into the mid EUR160's.

"Favourable conditions in many of the world's major wheat-growing regions, including the European Union and the Black Sea, are anticipated to result in an overall 20 MMT, year-on-year increase in global wheat stocks. As we get closer to the harvest of these crops, we expect global wheat prices to come under increasing pressure" Rabobank said.

A Reuters survey released around a month ago came up with an average trade guess for Chicago wheat at the year end of $5.73/bushel, and the USDA on Friday predicted prices averaging only $5.30/bushel in the 2014/15 marketing year, so Rabobank aren't out on a limb on their own here.

In other news, Ukraine said that they'd exported almost 24 MMT of grains in 2013/14 to Feb 24, an increase of 36.7% on last year. That total includes 14.23 MMT of corn, 7.29 MMT of wheat and 2.14 MMT of barley. The Ministry there currently forecast grain exports at a record 32.5 MMT this season, up 41.3% versus 23 MMT a year ago.

Despite some talk to the contrary, last week's exports held up rather well given the unrest seen in the major population areas. Feb 1-20 grain exports via seaports were 1.77 MMT, up almost 5% versus 1.69 MMT in the same period in January, according to APK-Inform.

Spring grain planting is also now reported to be underway in the Crimea region of Ukraine.

The weather in the UK has turned a little milder too, and it suddenly feels like spring is almost here. Anecdotal reports I am hearing suggest that farmers here are now asking if they can take delivery of their spring seed.

Meanwhile, crop conditions in Europe are generally looking pretty good, if yesterday's report from the EU Commission's MARS unit is anything to go by. "Frost kill in Europe has been very limited so far, thanks to continued warmer-than-usual weather conditions in most regions during most of the winter period, whereas areas with winter cereals that did experience cold were mostly fully hardened and protected by snow," they said.

Whilst acknowledging that impact of the flooding and waterlogged conditions on crop production are difficult to judge at the moment, the overall damage done is expected to be "limited" they concluded.

On the international tender front, Turkey are in for 100 TMT of optional origin barley for Mar/Apr shipment. Tunisia bought 75 TMT of optional origin soft wheat and 59 TMT of durum in a tender. France might be the most likely supplier of the soft wheat. Morocco's state grains agency has launched a tender to buy 260,000 MT of soft wheat on the local market.