EU Wheat Mixed On Conflicting Factors

27/07/12 -- EU grains closed mixed with Nov12 London wheat down GBP0.25/tonne to GBP187.70/tonne and Nov12 Paris wheat EUR1.75/tonne higher at EUR257.75/tonne.

For the week as a whole that puts Nov12 London wheat GBP6.80/tonne lower and Nov12 Paris wheat EUR11.75/tonne easier.

It's been another volatile week, with some rain falling and calls for possibly a cooler and wetter outlook for the US combined with more Eurozone meltdown fears the winners overall.

There's plenty for the bulls too though, with Black Sea production (and export) estimates shrinking and some seemingly outrageously low yield estimates coming into the market late Friday from Lanworth Inc, the US firm who employ a combination of satellite imagery and on the ground data to forecast yields.

The IGC cut their Russian 2012 wheat production estimate by 4 MMT from last month to 45 MMT, and some 20% down on last year. They cut Kazakh output by 3 MMT to 12.0 MMT, a drop of 47% from last season's record crop, and whilst leaving Ukraine production unchanged at 13.0 MMT that still represents a drop of 42% on last year.

For the record EU-27 wheat production was pegged at 132.0 MMT, down 4% on last year, with the UK at 15.4 MMT (up marginally on 2011), France at 38.0 MMT (+5%) and Germany at 22.7 MMT (-1%).

The EU corn crop was estimated at 65.7 MMT, up 0.5 MMT on last year and the EU barley crop at 52.6 MMT, up 0.9 MMT on last year. The UK barley crop was forecast unchanged on 2011 at 5.5 MMT, with both the French and German crops rebounding sharply from last season's drought-hit output at 11.0 MMT (+24%) and 9.8 MMT (+11%) respectively.

The IGC also cut their 2012/13 Russian wheat export forecast to 9 MMT versus an estimate of 12 MMT last month and 22 MMT in 2011/12. Kazakhstan is now seen exporting 7 MMT of wheat, compared to 9.5 MMT forecast last month and 10.2 MMT in 2011/12. Ukraine's export estimate was left unchanged at 3.5 MMT, but down from 5.3 MMT in 2011/12.

In light these Black Sea reductions the EU-27 will export 17.6 MMT of wheat in 2012/13, 1.3 MMT more than estimated last month and up a similar amount on 2011/12, they said. America's share of the world wheat export market will also rise to 33 MMT, versus the 32 MMT forecast last month and 27.7 MMT in 2011/12.

The balance of world wheat trade in the season ahead is therefore seems destined to switch back into the hands of Europe and the US and away from the normally less price-discerning Black Sea sellers. Sounds pretty bullish doesn't it?

Before we all get too carried away though, how much of this is already priced into the market? Also consider that with prices where they are every region around the world is seen importing less wheat in 2012/13 than in 2011/12. Total world wheat imports are forecast at 132.6 MMT - which is 12 MMT, or 8%, down on 2011/12.