EU Grains Mixed As US Crop Ratings Fall Sharply

06/01/15 -- EU grains finished the day mixed, with Jan 15 London wheat up GBP0.50/tonne at GBP134.90/tonne, Jan 15 Paris wheat was EUR1.75/tonne easier at EUR197.00/tonne, new front month Mar 15 Paris corn was up EUR1.50/tonne at EUR168.25/tonne and Feb 15 Paris rapeseed ended EUR3.25/tonne higher at EUR358.50/tonne.

The market largely shrugged off the news that US winter wheat crop ratings had fallen sharply in many states across the last month.

Illinois saw the largest decline, with the proportion of the crop rated good to excellent down a whopping 32 percentage points, from 56% at the end of November to only 24% now.

Kansas (-12 percentage points), South Dakota (-11) and Nebraska (-12) all suffered double digit falls in the good to excellent category too.

Still, the HGCA's Jack Watts says that US winterkill concerns are premature so "don’t be surprised if current ‘fears’ are not realised come summer."

Crop conditions heading into winter dormancy were in fact rather good, historically, he notes. So perhaps things aren't really as bad as the bare bones of these numbers suggest?

The situation wasn't much different 12 months ago, however and early 'fears' then proved to be more than justified. In Kansas, the leading US winter wheat producing state, the crop was rated 63% good to excellent at the end of November 2013. That had fallen to 58% at the end of December and by the end of January 2014 the Kansas wheat crop had slumped to be only rated 35% good to excellent.

Kansas wheat production ultimately finished up as the lowest since 1989 last year, and the current rating is 9 points below where things were at the end of December 2013!

Something for the bulls to hang onto there.

Both the pound and euro remained under pressure again today. The former from a string of disappointing economic data to start 2015, and nervousness already kicking in over the General Election despite it still being 4 months away. The latter is potentially even sicker than sterling, with a serious round of eurozone QE on the cards, and talk of a Greek default/eurozone exit if the poll-leading left-wing Syriza party get elected on Jan 25.

Barclays are forecasting the pound to fall to 1.43 against the US dollar by the end of the year, some 6% lower than today's rate. They also see the EUR/GBP exchange rate dipping to 0.75 in the year ahead, around 4% below where the pair currently trade.

Essentially that would appear to be a continuation of the 2014 trend. The pound lost 5.5% of it's value against the US dollar last year, but gained 7.4% versus the euro.

That could however see Paris wheat outperform London wheat for a third year in a row in 2015.