EU Grains Higher, Front Month Paris Wheat Getting Technical

21/10/14 -- EU grains closed higher. Nov 14 Paris wheat again posted better gains than the deferred contracts, as seemingly more shorts get squeezed out. The Nov 14/Jan 15 differential was EUR4.50/tonne on Friday when the increased front month margin calls were announced, and tonight that's narrowed to EUR2.75/tonne.

Certainly there will be some shorts on the Nov 14 London contract intending to delivery against it, as thankfully we have more than a just couple of futures stores here in the UK!

Nov 14 London wheat finished up GBP1.00/tonne at GBP116.50/tonne, Nov 14 Paris wheat was up EUR4.25/tonne at EUR164.00/tonne, Nov 14 Paris corn was EUR1.50/tonne higher at EUR142.50/tonne and Nov 14 Paris rapeseed rose EUR2.50/tonne to EUR320.25/tonne.

Yet again fresh news was relatively hard to find. The USDA reported late last night that the US 2014 corn and soybean harvests weren't as advanced as many had expected at 31% and 53% done respectively. The forecast for the week ahead is conducive to some decent progress being made between now and next Monday's report however. There's already talk of some US farmers considering leaving their corn in the field over winter, given current low prices.

UK farmers have been a bit more active in selling wheat following the recent rally from 4 year lows. "If you want wheat, you can get it," one trader told me today. The question is "who wants it?"

The sharp rebound in wheat production this year means that the UK is presented with a bit of a dilemma. Domestic demand is only so so at the moment, certainly from the feed manufacturer's perspective. Lower milk and beef prices and an assortment of cheap alternatives have seen to that. There's also an abundance of on farm fodder stocks for later in the winter.

"There’s only so much that can be absorbed by domestic demand, and a strong export programme for wheat and barley will be needed to avoid a large carryover into 2015/16," say the HGCA.

Make that a very large carryover, as of the anticipated 3.3 MMT surplus left over for export or to be carried into next season, only 142 TMT had actually been shipped abroad by the end of August (the most recent figures available).

Whilst an increase in demand from the bioethanol sector is widely anticipated in 2014/15 (up 7% according to Defra), that's only part of the story. "When it comes to bioethanol gross margins, there’s another side of the coin that needs to be considered. Ethanol prices have also been in decline as global demand has been unable to keep up with supply," the HGCA note.

Demand, or the lack of it, for the DDGS produced by these plants is also another factor to consider. This is also an industry that's been habitually plagued by operational disruptions in its relatively short history, so continuing to run at anything like "full steam ahead" for the entire season might also prove to be a challenge.

In other news, the Ukraine Ministry reported that the corn harvest there was 60% done on 2.8 million hectares, producing a crop of 14.77 MMT to date. Yields are averaging 5.28 MT/ha, if they continue to do so then they'll end up with a crop of 24.6 MMT, which would be 20% down on last year's record 30.9 MMT (using the USDA's estimate for production in 2013).

The Ukrainian Agrarian Confederation estimated corn production there at 27 MMT today.

Ukraine has also harvested 9.16 MMT of sunflower off 94% of the planned area, along with 3.19 MMT of soybeans, off 87% of the expected area.

Winter grain plantings are nearing completion in Ukraine at 92% done on 6.9 million hectares. Wheat accounts for the vast majority of that at 96% done on 5.9 million ha, with barley adding a further 779k ha (73% of plan).

APK Inform lowered their estimate for this year's Russian corn crop by 5.6% to 11.7 MMT, although that's still just about a record crop, as it's slightly ahead of last year's production of 11.6 MMT.

The Russian Ministry said that this year's corn harvest was now almost 73% done, producing a crop of 8.8 MMT so far. Yields are averaging 4.56 MT/ha so far versus 5.29 MT/ha a year ago. That suggests a final bunker weight crop of a little over 12 MMT this year.

Ag Canada estimated Canada’s 2014 wheat crop at 27.49 MMT versus previous estimate of 27.71 MMT, a drop of more than a third on last year's bin buster.