EU Grains Recover Some Lost Ground To End Week

21/12/12 -- EU grains regained some of the week's losses on bargain-hunting with Jan 13 London wheat up GBP3.50/tonne to GBP210.50/tonne, May 13 GBP4.00/tonne higher to GBP215.00/tonne and new crop Nov 13 gaining GBP4.30/tonne to GBP189.30/tonne. Jan 13 Paris milling wheat rose EUR5.50/tonne to close at EUR254.50/tonne.

Despite today's gains Jan 13 London wheat was still GBP7.00/tonne lower for the week, with May 13 down GBP4.50/tonne and new crop Nov 13 falling a more modest GBP1.20/tonne. Jan 13 Paris wheat finished the week with net losses of EUR5.75/tonne.

Fundamentally nothing much has changed in the grains markets, but heavy fund selling tied to year-end book-squaring and the failure to seal a deal to ensure that the US doesn't fall off it's self-imposed "fiscal cliff" has driven the market sharply lower.

When I say nothing much has changed, in some cases things have got worse not better. The Argentine Ag Ministry cut their forecast for wheat production there to 10.5 MMT, although many analysts think that this is optimistic. The Argentine government have a vested interest in over-estimating the crop in an attempt to keep inflation under control.

The Bahia Blanca Grain Exchange say that Argentina's wheat crop could be as low as 8 MMT this year. The Buenos Aires Grain Exchange cut their estimate to 9.38 MMT. The USDA say that last season's crop was 15.5 MMT, so these forecasts represent a production cut of 39-48% on output in 2011/12. Quality is also a serious issue this year.

A report on Bloomberg says that the Argentine government are to halt wheat exports until the end of January "to avoid a domestic shortage" whilst the size and quality of this year's crop is assessed. Harvesting is currently only around halfway complete.

The bulk of Argentina's wheat exports normally go to neighbouring Brazil, although they have reportedly switched their attention elsewhere recently, including supposedly buying German wheat.

Brazil imported 4.4 MMT of wheat from Argentina in 2011, or around 56% of their total wheat import needs. Trade talk today suggests that Brazil have bought US wheat for Jan shipment this week and are actively looking for more for Apr/May shipment.

Meanwhile Ukraine and Russia are effectively out of the wheat export market for the next six/seven months, and EU wheat shipments are running 28% ahead of last year's levels (and accelerating) despite a 4% decline in production in 2012.