EU Wheat Closing Comments

08/10/10 -- A bullish crop report from the USDA set the EU grains markets on fire Friday afternoon. Nov London wheat closed GBP9.70 higher at GBP167.00/tonne and Nov Paris wheat rose EUR15.75 to EUR223.75/tonne.

Other EU grains also closed sharply higher with Nov Paris corn up EUR13.25/tonne and Nov Paris rapeseed EUR10.75/tonne higher.

The USDA stunned the trade for the second week running. Last week they pegged Sept 1st corn stocks 300 million bushels higher than the trade was expecting. This week they pegged 2010 corn yields at 155.8 bushels/acre, 6.7bpa lower than last month's estimate and 4.2bpa lower than the trade was expecting.

That slashed US corn production this year by more than 12.5 MMT from last months estimate to 321.6 MMT and cuts US ending stocks to just 22.9 MMT. That represents 57.8 days of supply, the second tightest of the past 35 years.

US wheat ending stocks were also estimated lower this month at 23.2 MMT.

Lost in amongst all the data they actually raised EU-27 wheat production for 2010/11 by half a million tonnes to 135.63 MMT. World wheat output this season was reduced slightly to 641.4 MMT, 6% down on last year. World ending stocks were forecast at 174.7 MMT, down 3 MMT from last month and 22 MMT below last year.

Even so, those ending stocks are still 50 MMT higher than in the so-called "food crisis" year of 2007/08. That's 40% more wheat than when we visited the dizzy heights of GBP200/tonne, yet there will be plenty now who will be expecting us to go there again after this report, ably assisted by fund money of course.

It is interesting that a mere 22 MMT (just 3% of world production) marks the difference between last year's "burdensome" stocks and this year's new "food crisis" is it not? It is also interesting to note that this season's ending stocks approaching 175 MMT are still forecast to be almost 10 MMT higher than they were in 2008/09 when wheat prices completely collapsed.

The difference between now and then of course is that the funds have got their appetites back.