EU Wheat Presses On To Multi-Month Highs

31/01/12 -- EU grains finish posting strong gains with Mar 12 London wheat up GBP3.50/tonne to GBP168.50/tonne and Mar 12 Paris wheat rising EUR6.50/tonne to EUR215.50/tonne.

For the month of January as a whole that puts London wheat up GBP16.25/tonne and Paris wheat EUR13.00/tonne higher in a rise that very few saw coming. For London wheat this was the highest close for a front month since September, and for Paris the best since June.

Extreme cold in Russia, Ukraine and Eastern Europe is the latest weather scare, following on from dryness in Argentina which got the market spooked earlier in the month.

Have the market fundamentals really changed that much from a month ago? Local analyst in Argentina Agroconsult are now estimating the corn crop there at 18.8 MMT due to the drought, around 10 MMT lower than the USDA were forecasting last month. In round figures that means that we've seen London wheat prices rise 10.7% this month on the back of a 1% reduction in the size of the world corn crop. I'll let you decide if that's justified or not.

Meanwhile, a spin-off of autumn dryness and probable winterkill in Ukraine is likely to be increased corn production there in 2012. Spring corn plantings are likely to rise 25% to 4.5 million hectares, according to the Ukrainian Agribusiness Club. That will probably mean a second record corn crop in a row for the Black Sea nation later this year.

One theory doing the rounds is that heavy buying in the futures market today both sides of the Atlantic was due to shorts getting squeezed into stop-loss buying with margin calls starting to bite.

Certainly the differential between the cash and the futures market has widened, which would appear to confirm that this rally isn't end-user demand-led. UK interest domestically, and on the export front too, was said to be non-existent today as in fact it was for most of last week.

A sideline point of interest is that Nov13 London wheat closed at a slim GBP1.15/tonne discount to Nov12 today, whereas a year ago that differential was over GBP25.00/tonne.