The Morning Vibe: When Is Milling Wheat Not Milling Wheat?

01/08/14 -- The answer to the question appears to be "when it's MATIF milling wheat than we are talking about".

The finer details of the MATIF milling wheat contract are surprisingly lacking in finer detail: "Sound, fair and merchantable quality of the following standard: Specific weight 76 kg/hl; Moisture content 15%; Broken grains 4%; Sprouted grains 2%; Impurities 2%" - that's it. Not even a mention or protein in there, let alone Hagbergs. After that it's down to the silos themselves to "refine" the contract specifications to accommodate the grain that they are prepared to accept.

Soufflet, whose Socomac silo becomes a new approved delivery point against the MATIF contract in November, say that they haven't even decided what quality specs they will accept themselves yet, according to a report on Reuters. "The Matif contract is designed to be representative of the French market in general, and this year French wheat is tending towards feed quality," one trader was quoted as saying in that report.

There's the answer then to why the MATIF contract (-5.1% as of last night's close versus last Friday night) has fallen out of bed even more than London feed wheat (-3.3%) this week. See, there's always someone worse off than yourself isn't there? And it's always extra nice when they're French!

In other news, a Canadian wheat crop tour found yield potential in spring and durum wheat there to be the second highest ever (only beaten by last year's record crop). Quality also looks good at this stage, although persistent cool temperatures does add the caveat of getting the harvest in before any possible early frost strike.

It seems a tad bizaare than with EU grain prices at 4-year lows we're letting cheap Ukraine kit into Europe at preferrential duty-free rates, but that is exactly what we are doing. This loop-hole is currently open until the end of October, and Brussels yesterday confirmed that they'd issued 336,625 MT worth of corn import licences this past week alone, along with approving 191,600 MT worth of Ukraine wheat imports.

Now let's have a look at Russia: there are two options here. Either a) they are lying or b) their harvest is going to be much larger than official estimates have suggested up until now.

ProZerno yesterday estimated Russia’s 2014/15 grain crop at a large looking 102.6 MMT, up from a previous estimate of 98.9 MMT and compared to 92.4 MMT a year ago. That total includes 58.2 MMT of wheat, a figure larger even than IKAR's hitherto largest hat in the ring of 57.5 MMT from earlier in the week.

This morning the Russian Ag Ministry say that the country has harvested 48.2 MMT of grain off little more than 30% of the planned area, with yields currently up 22% on a year ago. Final production in 2013 was "only" 92.4 MMT. Let's half that gain and sat that yields eventually come in 11% up on last year, what production number would that give us? Blimey, it's 102.6 MMT!

They're said to have harvested 38.5 MMT of wheat off 10.6 million ha - 42% of the planned area, with yields averaging 3.62 MT/ha so far (+19.5%). OK, most of what's left to be harvested will be coming from the less productive areas, and be lower yielding spring wheat so that average is going to drop off. Note though that the USDA are using an average Russian wheat yield estimate exactly the same as a year ago - yet the Russian Ministry are telling us that yields are currently almost 20% up on last year.

Say they end up 10% higher, using the USDA's harvested area estimate of 23.75 million ha (the Russian Ministry's figure is higher, but we don't trust them right?) we'd end up with a Russian wheat crop of guess what? The answer is 58.1875 MMT - ProZerno and me (wasn't that a film starring Richard E Grant?) must definitely be using the same calculator!

And you could easily make out a case for production potentially being higher than that.

It's a good job that the Russian quality seems to be OK. You can always rely on the French to let you down can't you?