EU Wheat Declines From Early Gains, US Fiscal Cliff Euphoria Short-Lived

02/01/13 -- EU grains closed mixed with Jan 13 London wheat up GBP0.75/tonne to GBP206.00/tonne. Benchmark May 13 fell GBP0.25/tonne to GBP210.00/tonne and new crop Nov 13 was GBP0.45/tonne easier at GBP186.00/tonne. Jan 13 Paris wheat ended EUR1.00/tonne higher at EUR251.25/tonne.

Grains got an initial boost from the news that a deal, albeit a temporary one, had been reached to avoid a US fiscal cliff disaster. Jan 13 Paris wheat traded as high as EUR5.00/tonne firmer at one stage, but failed to hold most of those early gains.

US grains opened with decent gains to start the new year, but quickly turned negative in afternoon trade, dragging European markets down with them.

US wheat is now said to be cheap enough to feature into Europe. Some business may have been done over the Christmas period, according to trade gossip, although the overall volume will be limited by the Tariff Rate Quota (TRQ) system that restricts US wheat shipments to the EU.

It may take a few more weeks of buoyant US wheat export sales to convince the market that world demand really has switched across the Atlantic. Fund money meanwhile has established a significant short in CBOT wheat, but still seems willing to add to that for the time being.

Closer to home, suddenly warmer weather could still have a wintry sting in the tail. "Heavy rainfall and strong warming have developed in European winter wheat and rapeseed growing areas. Snow is rapidly melting in Eastern Europe, while slow growth of winter grains has resumed in portions of France, southern Germany, Italy and Spain. Temperatures January 1 reached 50 F in Paris and mid-upper 40 s F in Germany and Poland. Winter wheat and rapeseed will grow with temperatures above freezing (32 F)," say Martell Crop Projections.

"If the unusual warmth persists and is followed by an Arctic blast of cold, there may be damage to winter grains. For the time being, there is no hint of bitter cold as the forecast calls for temperatures 5-10 F above normal all across western and northern Europe," they warn.

Even closer to home things are very far from ideal indeed. "Conditions in United Kingdom have become way too wet from 3-5 inches of precipitation over the past 2 weeks. Indeed the 2012 calendar year may have set a record for wetness in Europe’s 3rd largest wheat country. Field conditions in United Kingdom were so wet for planting last fall that producers could not get into the field. The expectations is that the wheat area may be significantly reduced for the 2013 winter wheat harvest. December flooding may further damage UK wheat potential," they conclude.