EU Wheat Correction Continues For Second Day

05/01/12 -- EU grains finished lower with Jan 12 London wheat down GBP1.75/tonne to GBP150.75/tonne and Jan 12 Paris wheat falling a hefty EUR6.00/tonne to EUR196.75/tonne.

It was a second day of correction for wheat, appearing to highlight that volatility will be the theme for 2012 just as it was for much of 2011.

European debt worries were back to the fore, with the single currency falling to 15-month lows against both the US dollar and sterling.

UK and EU farmer selling reportedly picked up this week as ex farm levels rebounded to psychologically important levels, and the best that has been on offer for some time.

The weather forecast in Argentina is turning wetter. As that has been just about the only bullish factor supporting this three week long rally it is perhaps not surprising that a correction from markets that had gained more than 10% in the case of London wheat and in excess of 16% for Paris wheat was on the cards.

EU exports remain sluggish. Brussels only issued export licences for 136 TMT last week. OK that was Christmas week but you have to go all the way back to the first week of the marketing year to find a lower weekly total.

That brings total EU exports to 7.26 MMT in 2011/12 so far, 35% down on the 11.13 MMT that had been exported this time twelve months ago.

EU ending stocks are seen increasing 8.4% in 2011/12 by the USDA, although other estimates are significantly higher. Rabobank forecast a 13% rise and are predicting prices on the Paris market to average a lowly EUR168.75/tonne in 2012.

That price is so low that I had to get written confirmation that I hadn't misread it. At around 14% below where we are now that would suggest London wheat averaging just GBP130.00/tonne this year.

Next week sees Spain and Italy attempting to auction off debt, rains maybe finally arriving in Argentina and the USDA releasing it's January world supply and demand estimates. What could possibly go wrong?