EU Grains Mostly Higher, But Within Sight Of Recent Lows

23/06/14 -- EU grains markets began the week mostly higher, on ideas that current low wheat prices are stimulating demand, and on continued weather-related concerns for the US crop.

The day ended with the thinly traded Jul 14 London wheat up GBP4.50/tonne at GBP144.00/tonne, and with new crop Nov 14 London wheat GBP0.15/tonne higher at GBP138.50/tonne. Nov 14 Paris wheat ended EUR0.25/tonne firmer at EUR188.50/tonne, Aug 14 Paris corn was down EUR0.50/tonne at EUR175.50/tonne, whilst Aug 14 Paris rapeseed fell EUR2.75/tonne to EUR350.50/tonne.

Heavy rains across the US Midwest and Plains continue to disrupt the harvest and are potentially causing yield and quality losses. Fusarium is said to be a problem in the Midwest.

Egypt's GASC bought 180 TMT of wheat for Aug 1-10 shipment over the weekend, with 120 TMT coming from Romania and the remaining 60 TMT cargo from Russia. The prices paid were around the $252/tonne mark on an FOB basis, with a further $10/tonne or so on top for freight. The cheapest French offer was $257.69/tonne, and freight from there would also have been more expensive, potentially putting French wheat around $10/tonne over the competition on a C&F basis. US wheat was offered at $264/tonne plus almost $28 freight, making them out-priced to the tune of around $30/tonne C&F on a delivered basis.

Saudi Arabia also bought wheat over the weekend, picking up a 780 TMT mixture of hard and soft wheat for Sep/Nov shipment. Europe, North and South America and Australia were the approved origins, although the breakdown of what they actually bought has not been revealed.

For today at least, that was enough to support the market, although neither tender purchase was particularly unusual or outrageously large compared with the volumes that you would expect either country to normally buy.

Despite the slightly firmer tone, French wheat continues to struggle to get back up above the EUR190/tonne mark on front month Nov 14, and remains within sight of the recent closing low of EUR186.75/tonne set last Tuesday.

Coceral put some flesh on the bones of their EU crop production estimates released on Friday. Europe's second highest wheat crop in history will include a near 1 MMT rise in the size of the French wheat crop to 37.7 MMT, along with a more than 600 TMT increase in Germany, where this year's soft wheat crop will total nearly 25.5 MMT.

The UK meanwhile, with see production rise by 31% to 15.6 MMT. Wheat yields here will average 7.9 MT/ha, up 7% on last year, they said. That sits in between last week's forecasts from MARS (8.05 MT/ha) and Copa Cogeca who gave us a low looking 7.5 MT/ha.

For barley, Coceral forecast a UK crop of 6 MMT, which is 14% down on last year's unusually high output. Yields are seen 4% lower at 5.83 MT/ha. The UK will also produced 2.5 MMT of rapeseed this year, a 14% rise on a year ago, with yields up 15% to 3.45 MT/ha. Again, their yield estimates are in the middle of the range forecast by MARS and Copa Cogeca last week.

Flood damage and heavy rains mean that Bulgaria's wheat crop might not make the official forecast of 5 MMT after all, the Ag Ministry there said today. Coceral's Friday estimate was 5.09 MMT.

APK Inform said that Ukraine seaports shipped 201.4 TMT of grains last week, a small decline on the 214.3 TMT exported the previous week. Some 94.4 TMT of last week's total was wheat, they added.

Agritel said that new crop wheat prices in Ukraine fell 10% last week, as the harvest approaches (a very small volume of wheat has in fact already been cut). That takes local prices down to the equivalent of only $170-186/tonne they said. You won't require a calculator to work out what that means in sterling terms at the low end of that range, with the pound now running at 1.70 against the dollar.

Sterling continues to be supported by the belief that UK interest rates will be on the rise long before those in the Eurozone or US. A leading member of the ECB's Governing Council was apparently quoted over the weekend as saying that interest rates in the Eurozone are unlikely to rise before 2016. US rates are also expected to remain where they are at least until the end of 2015. Yet the market is now pricing in a UK rate rise before the end of the year.