EU Wheat Down But Off The Lows

05/02/13 -- EU wheat futures closed mostly lower with Mar 13 down GBP0.50/tonne at GBP212.00/tonne, benchmark May 13 also down GBP0.50/tonne at GBP214.00/tonne and new crop Nov 13 GBP0.25/tonne lower at GBP189.75/tonne. Mar 13 Paris wheat was EUR1.25/tonne lower at EUR246.25/tonne. May and Nov London wheat did at least close a pound or two up off the lows of the day, whilst Mar Paris wheat was a couple of euros off the intra-day low.

After a brief one day respite, the pound was back under the cosh again, falling close to the 1.15 level against the euro in late trade. The recent strength of the euro has really knocked EU wheat prices despite exports themselves running well ahead of last season. US dollar strength also seems to be harming America's export hopes, with many expecting the USDA to revise downwards their projections for US wheat sales this season in Friday's WASDE report, with an at least partially corresponding jump in ending stocks.

Monday's weekly export inspections of only 15.206 million bushels were another setback for a US wheat market aiming to export 29.5 MMT in 2012/13. To do that they need exports in excess of 26 million bushels, and time is running out with the US wheat marketing year ending in May. Egypt's weekend purchase of just one cargo of US wheat offered little encouragement. Aside from a couple of tenders in the pending tray until the middle of the month from Jordan and Iraq there's little foreign interest around for America to get it's teeth into. India meanwhile seem to have opened up their own new discount store to fill the void left by Ukraine and Russia.

There are reports of an Indian delegation being sent to Australia to investigate better ways of storing/handling wheat to improve quality and efficiency and thereby open up a wider export market for themselves, embracing this new found way of earning dollars.

Funds also seem to have lost their confidence in grains, at least for the time being. Maybe the recent gains in equities around the world are proving more enticing? Whatever the reason, Friday's Commitment of Trader's Report showed trend-following funds holding a net short position of 50,125 CBOT wheat contracts, up 3,667 lots on the week through to last Tuesday night. Maybe the size of that short itself could offer a glimmer of hope for the bulls? Only time will tell.

It's not like there isn't any supportive news out there though. For one, America's own wheat crop for the coming 2013 harvest is looking in a very shabby state.

For two, unconfirmed reports circulating late in the day suggested that Russia had indeed decided to suspend it's 5% import tax on grains, although before everyone gets too excited their Ag Ministry said that they only expect the country to import a relatively modest 800 TMT of grains in the Jan/Jun 2013 period. That would take their 2012/13 marketing year total to around 1.2-1.3 MMT. The Ministry did confirm that they'd sold another 60 TMT of grains in their weekly intervention sale, bringing the marketing year-to-date total to 1.624 MMT so far. They expect that to reach 3 MMT by the end of the season.

Sales thus far have largely been confined to Siberia and the Urals, but these will apparently be extended into the European part of Russia next week to attempt to keep a lid on surging domestic food prices. It seems highly likely that at the very least Russia will have only minimal carryover stocks going into the 2013 harvest, although for the time being they say that they are confident of a rebound in production to around the 95.0 MMT mark, up 34% versus 70.7 MMT in 2012/13. Even so, some of that extra production will be wanted to replenish minimal domestic stockpiles.

Meanwhile, Stats Canada released their Dec 31 stocks numbers today, pegging all wheat inventories at 20.7 MMT, down slightly from 20.83 MMT a year previously and some 1 MMT below the average trade estimate. Also coming in lower than anticipated were barley stocks of 5.1 MMT (versus the 5.3 MMT expected and 5.5 MMT at the end of 2011) and canola stocks at a 6-year low of 7.4 MMT (versus 7.5 MMT expected and 9.7 MMT at the end of 2011).

On a more negative note, Ukraine announced that they'd exported 16 MMT of grains in the July/January period, up 46% on a year previously. That total included 7.8 MMT of corn, 6.0 MMT of wheat and 2.0 MMT of barley. They are also confident of a sharp recovery in grain and oilseed production in 2013/14 and would normally be expected to "hit the ground running" with regards to exports as early in the season as possible.

"Fairly widespread rain and snow last week further improved soil moisture in most (Middle Eastern) areas, which will favour the wheat crop," said MDA CropCast. In North Africa "heavy rains are expected in far northern Algeria and far northwestern Tunisia this week, which will likely lead to some areas of wetness. Dryness will remain a concern across southwestern Morocco, but some minor improvement is expected in central Tunisia," they add.