EU Wheat: It's Contract Highs All Round Once More

Posted by Nogger - a legend in his own mind at 07:52 | Categorized as

05/07/12 -- EU grains finished higher again with Jul 12 London wheat up GBP3.25/tonne to GBP204.25/tonne, and new crop Nov 12 also GBP3.25/tonne higher to close at GBP181.75/tonne. Aug 12 Paris wheat rose EUR9.00/tonne to EUR245.00/tonne, whilst Nov 12 was EUR6.25/tonne firmer at EUR243.75/tonne.

All made fresh contract highs. For both Jul 12 London wheat and Aug 12 Paris wheat this was also the highest close for a front month since the all-time highs of May 2011.

The ongoing US drought and it's likely impact on corn production there is the main catalyst, along with sharply lower yields out of the Black Sea this year.

In the US "The heat wave will continue a few more days, before welcome cooling occurs. Chicago, Illinois' 5-day maximum temperatures, beginning today and continuing through Monday, are as predicted as follows: 105 F, 103 F, 90 F, 80 F, 80 F," say Martell Crop Projections. Rainfall chances in Chicago are no better than 20% from Saturday through Sunday night, they add.

Meanwhile Ukraine's Ag Ministry report that early yields are some 37% down on this time last year. Their The Russian counterparts say that so far yields there are down 39% on last year.

Things are nowhere near as bad in Europe however. FranceAgriMer today raised their estimate for the 2012/13 French wheat crop to 38 MMT, versus 36 MMT last year, an increase of 5.5%. The French barley crop has done hugely better than the one dogged by drought 12 months ago and is now estimated at 11.2 MMT versus 8.8 MMT last year, an increase of 27%.

The Bank of England announced a further GBP50 billion worth of QE in one more effort to stimulate lending and boost the economy. The ECB also announced that they were lowering interest rates by a quarter to 0.75%.

Both moves were widely expected by the market, but still applauded nevertheless. Exactly why the BoE think that GBP50 billion will make a difference where the GBP275 billion that went before it hasn't is unclear.

Ditto the ECB. Interest rates at 0.5% in the UK don't appear to have made much of an impact so why will going from 1.0% to 0.75% create a lot of stimulation on the continent? Both smack of one desperate last throw of the dice before some much tougher decisions need to be taken.