EU Wheat Declines, Buy The Rumour, Sell The Fact

11/07/12 -- EU grains closed mostly lower despite a bullishly construed USDA report with Nov 12 London wheat down GBP0.60/tonne to GBP182.40/tonne and Nov 12 Paris wheat EUR1.75/tonne weaker at EUR246.75/tonne.

It was a strange old day, with the long awaited USDA report confirming trade fears of a very sharp reduction in US corn and soybean yields. Corn yields were slashed 20 bushels/acre from last month to 146bpa, with soybeans yields also cut heavily to 40.5bpa. Both estimates were below the lowest trade estimates of what the market thought that the USDA would say, although not necessarily the lowest numbers privately.

Predictably the market was sharply higher as soon as the news was announced, with corn racing to post gains of 25-30 cents and beans up 30-35 cents, before a buy the rumour sell the fact mentality kicked in.

That sent US grains lower, dragging European futures down with them. After a rally of the sort of magnitude that we have witnessed recently the market is always going to be vulnerable to a swift correction, even if it's for little apparent reason.

As far as wheat is concerned the USDA pegged world production 7 MMT lower than last month, with usage trimmed only 2 MMT, 2012/13 ending stocks were cut 3 MMT. Although at 182 MMT that still places them at a very comfortable stocks to use ratio of 27%.

The main changes in production saw Russia's output cut 4 MMT, China & Kazakhstan's by 2 MMT apiece and Canada's by 0.4 MMT. The EU-27 crop was raised 2 MMT from last month to 133.14 MMT, although that's still a 3% drop on last year.

The main beneficiaries in Europe were France whose crop was increased 1 MMT to 38.0 MMT, 5.5% up on last year, and Germany where production was raised 0.7 MMT to 22.5 MMT, a 1% fall on 2011. The UK crop was left unchanged at 15.6 MMT. Poland's crop took a 0.4 MMT hit to 7.7 MMT.

The USDA lowered world barley‬ production 3 MMT to 131.9 MMT, with Ukraine down 1.5 MMT to 6.0 MMT, Kazakhstan down 0.2 MMT to 1.8 MMT and Canada down 0.5 MMT to 8.5 MMT. Output here in the EU-27 was left unchanged from last month at 53.6 MMT, of which the UK is seen contributing 5.6 MMT, a small increase on 2011.