EU Wheat Mixed, Fund Sell-Off Continues

03/01/13 -- EU grains closed mixed but mostly lower with Jan 13 London wheat up GBP0.40/tonne to GBP206.40/tonne, May 13 fell  GBP1.50/tonne to GBP208.50/tonne and new crop Nov 13 was  GBP3.00/tonne easier to a more than 2-month low of  GBP183.00/tonne. Jan 13 Paris milling wheat rose EUR2.25/tonne to close at EUR253.50/tonne.

News that the US wasn't about to tumble off the edge of it's very own fiscal cliff, at least not for another couple of months, provided nothing more than a very short-term boost for grains this week.

Risk-off mode still seems to be the order of the day as far as the funds are concerned, what and when they might change their minds is not an easy one to forecast.

So whilst we read stories on Bloomberg today that say "The worst U.S. drought since the 1930s Dust Bowl is damaging wheat crops across the world’s biggest supplier, at a time when hedge funds are the most bearish on prices in seven months" it is strange to see Chicago wheat prices hitting their lowest since before Independence Day.

Meanwhile data from the Kansas Agricultural Statistics Service, the top wheat producing state in the US, shows that crop conditions have deteriorated markedly during December. The US wheat crop was already estimated to be in the worst state on record in the USDA's last crop condition report at the end of November.

As we have seen on many occasions before however, fund money flows can and frequently do over-ride market fundamentals.

The MetOffice today announced that 2012 was the second wettest in history on records going back to 1910. The only worse year was 2000, when UK wheat yields strangely averaged over 8 MT/ha. The frequency of extreme rainfall in the UK may also be on the increase, they warned.

MDA CropCast echoed similar comments from other weather observers by highlighting that "snow cover remains rather limited across much of Europe, which is leaving wheat exposed to potential cold outbreaks."

For the time being however "temperatures remain rather mild in most areas, and winterkill threats are low," they added. There surely wouldn't be many willing to put too much money on the current mild spell signalling the end of a frost threat yet though.

MDA CropCast are forecasting an EU-27 wheat crop of 132 MMT this year, a 4% increase on 2012. Barley output is called marginally higher than this season at 52.9 MMT.

Meanwhile an optional origin wheat sale to Syria made earlier in the season is to be fulfilled with French origin grain after supplies from the planned Black Sea origin have dried up, according to trade reports. A vessel is expected to arrive at the French port of Rouen to load 25 TMT of wheat today. The same Middle East buyer is also said to be back in the market tendering for a further 100 TMT of wheat with a deadline of Jan 28.

The Kazakhstan Farmers Union says that the nation's growers are facing a "disastrous" shortage of spring seed, with prices set to double before farmers begin sowing later in the year.